I'm a Financial Planner: 3 Costly Decisions To Revise in Year One of Retirement

Retirement is one of life's biggest financial transitions. After years of saving and planning, many retirees focus on enjoying their newfound freedom — but the first year can also bring costly mistakes that affect long-term financial security.

MoneyLion spoke with Jordan Mangaliman, CEO and fiduciary wealth advisor at GoldLine Wealth Management in Fullerton, California, who explained that certain behaviors must be reevaluated in the first year out of the workforce to ensure finances are optimized for retirement. Below, we'll explore what they are and how they can be properly calibrated to ensure the longevity for your nest egg.

1. Keeping the Same Investment Strategy After Retirement

Retirees often do not change their investment allocation, keeping them the same as during their working years and the accumulation phase. The biggest risk then becomes the sequence of returns.

When they retire, they expect to draw smoothly, but fail to account for major volatility or market downturns. When the market comes down over an extended period of time, the losses are amplified because they are also selling positions to support their lifestyle.

The other side of the road can also present risks. Being too conservative can lead to missing out on crucial growth periods and losing the fight against inflation.

This is why a balanced portfolio that addresses both growth and fixed income is so important.

2. Spending Too Much During Retirement's 'Honeymoon Phase'

When retirees go all out and try to max out their spending right when they retire, it can have drastic negative impacts on a portfolio by overdrawing accounts unnecessarily. By building a budget beforehand and setting proper expectations, retirees can map out a plan that supports their lifestyle for the rest of their (potentially long) lives ahead.

3. Withdrawing From the Wrong Accounts First

The third mistake retirees make is not planning out which accounts to withdraw from first. Some retirees prioritize tax-free income for the initial five to 10 years, leading them to drain their Roth accounts first.

While tax-free treatment is important, a Roth account is often the most valuable asset a retiree has in their portfolio. Retirees should instead consider spending down taxable and tax-deferred accounts while letting their Roth grow for later use.

Every situation is different, but proper planning, ideally with the aid of a financial advisor, can save a retiree thousands of dollars in unnecessary taxes.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.