I'm a Financial Advisor: 2 Things Retirees Always Regret (and How To Avoid Them)
Retirement should be an exciting, well-earned time. Whatever journey you took to get there, the last thing you need is to look back and regret what you did — or didn’t — do in your life.
Unfortunately, it’s hard to plan for everything and far too easy to miss something vital or make a decision you wish you hadn’t. For some people, this is simply not saving money early. For others, it’s a bit more nuanced.
Keep Learning: I Asked 4 Financial Advisors What They'd Do With a $50K Windfall
Try This: 6 Clever Ways Retirees Are Earning Up to $1K Per Month From Home
MoneyLion spoke with two financial advisors about two things retirees almost always regret. Here’s what they said and how to avoid making the same mistakes.
Using Their Tax-Deferred Fund for a Major Purchase
If you’ve been contributing to a tax-deferred retirement account all these years, that’s great for your future self. Just make sure you don’t dip into those funds shortly before retiring.
The biggest thing [retirees] regret is using tax-deferred retirement money to pay for a big purchase immediately upon retiring,” said Jordan Masciorini, certified retirement counselor (CRC) and senior wealth advisor at Ticino Wealth. “That could be a boat, RV, a vehicle, down payment on a second home, among many other things.”
It might not seem like a big deal, especially if your purchase is relatively small compared to the amount of cash in your account. However, it can have major tax implications. This is especially problematic if you make the purchase within the same tax year that you worked.
“So let's say they retired in October, but have income from working January through September,” Masciorini said. “They then retire and decide to buy a $55,000 new vehicle. Since they worked for eight months the same year they retired, they may already be in a higher tax bracket, so taking a big chunk of their IRA will essentially be added to their taxable income for the year.”
Here’s an example.
You have a $2 million individual retirement account (IRA) and decide to purchase an RV to travel cross-country with upon retiring. A Class C motorhome starts at around $70,000 on average, according to Evotrex. That might not seem like much against the $2 million, but if withdrawing that money puts you into a higher tax bracket, the actual cost is going to be much more than anticipated.
Plus, as Masciorini pointed out, taking out that cash means it can no longer grow tax-deferred. So, the real cost includes the following.
The RV
Potential bump into a new tax bracket
Loss to the account’s overall growth
“What we recommend to clients is try their best to stick with the income that their financial plan tells them they can live on,” Masciorini said. “Instead of going into retirement thinking it's time to spend all this money you worked so hard to save, spend the first few years disciplined with your financial plan and only spend money on necessities, unless your financial plan says otherwise.”
Not Planning for Retirement Sooner
Not having a retirement plan or waiting until much later in life to create one is another thing retirees tend to regret. This isn’t about not saving, though AARP found that around 20% of those ages 50 and over don’t have any retirement savings. It’s about wishing you had a proper plan earlier.
“In many cases, they have done a great job saving but do not necessarily have a coordinated financial plan or tax plan for how their savings will work for them in retirement,” said Christina Mehltretter, certified public accountant (CPA), financial advisor and chief operating officer at Carolinas Financial and Retirement Planning.
You don’t necessarily have to work with an advisor to make a retirement plan, though doing so can help cut through any confusion. In any case, below are a few things to consider prior to retirement.
When to start collecting Social Security
Which retirement accounts to draw from (and in which order)
Whether a Roth conversion makes sense
Impact of required minimum distributions (RMDs) and qualified charitable distributions
How much cash you should have on hand
“The goal is not to predict retirement perfectly,” Mehltretter said, “it is to give yourself the gift of time and flexibility to make a thoughtful plan before you have to make key decisions.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: