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Financial Experts: 10 Retirement Mistakes Boomers Make (But You Don’t Have To)

A record number of baby boomers, as many as 4.1 million, will reach the age of 65 this year and begin their transition to retirement soon thereafter. It is often known as the “silver tsunami.”

While there is a lot of financial advice out there on retirement, it can feel daunting to know the right money moves to financially secure your golden years. Unfortunately, many boomers find out the hard way that they haven’t done what they needed to do at this late stage of the game.

Financial experts explain some common mistakes boomers make in retirement, so you don’t have to.

Not Maxing Out Pre-Tax Accounts

Maya Sudhakaran, head of growth and acquisition at investing app Plynk, has seen that many boomers don’t necessarily max out pre-tax vehicles such as 401(k)s and IRAs. 

“One of the biggest gifts that employment can give you is access to these pre-tax accounts,” she said. “You should really be thinking about maxing [them] out, especially if there’s an employer match.” 

Even without an employer match, it’s important to put in the maximum amount, she said. “The sooner you start doing it, the more time it has to compound and become a good chunk of change for you by the time you retire.”

Anyone over 50 years old is also able to contribute an additional $7,500 per year to a 401(k) and $1,000 more to an IRA.

Sudhakaran said, “You’d be surprised at how people don’t even think about that avenue to start off with.”

Not Forecasting Your Retirement Financial Needs

Some boomers underestimate the costs of retirement by not taking a “holistic view,” Sudhakaran said. “I think it’s important to develop a budget that outlines the expenses each year during retirement.”

She finds that people forget that even if they have paid off their mortgages, there are monthly maintenance costs and property taxes to consider.

Another big expense boomers fail to fully consider is healthcare, she said.

“Are you covered once you retire because you’re no longer on your employer’s healthcare plan? Are you getting Medicare or Medicaid? Do you have access to private healthcare? These are all costs that definitely add up.” 

Not Taking Your Distributions Properly

After all of those years of saving, retirement is the time when you finally get to take distributions from your retirement accounts. However, you have to be strategic about it, Sudhakaran said.

“Even when you are ready to take distributions from your accounts, it’s important to keep in mind that those funds are still invested,” she said. “And so you should be smart about whether you are withdrawing when the markets are up or down.” 

This necessitates the importance of an emergency fund, because it’s important to have easily accessible money that is liquid if you need to pay your bills immediately and you don’t have access to your other retirement funds, she said.

Leaving Old Retirement Accounts Untouched

Another mistake Sudhakaran sees is people leaving old retirement plans untouched.

“People change jobs all the time,” she said. “You probably have like four employers in your career before you retire. Chances are your 401(k)s are lying across the different employers.”

Not Adjusting Your Risk Level

Many people have a much higher risk tolerance in their investment portfolios when they are younger and still have a longer stretch of time to weather the ups and downs of the market. However, by the time they retire, Sudhakaran said, some people forget to reduce their risk level in their portfolios.

“Take an active mindset when it comes to consolidation and being present when you think about what the holistic view of your assets are, and that’ll set you up for a strong retirement.”

Not Utilizing a Money Market Savings

Another mistake she has seen boomers make is overlooking money market funds as a way to earn interest on their liquid savings.

“These are funds which at the moment are paying anywhere from 4.75% to over 5% just to have your cash sitting in that account,” she said. “So you are not actively invested, but you are basically getting money back just for that money sitting in a money market account. That’s very important to keep in mind because you have to keep up with inflation at some level.”

Withdrawing Too Much Too Soon

According to Miklos Ringbauer, a CPA with the accounting firm MiklosCPA, another mistake boomers make is to spend too much of their retirement nest egg too soon.

“People think that the money that’s in the bank account or a retirement account seems huge, and [they] assume that it’ll last forever,” he said.

The temptation to spend can be pressing, but you have to resist it and learn to live on a budget. 

Another outcome of withdrawing too much too soon is…

Read More: Financial Experts: 10 Retirement Mistakes Boomers Make (But You Don’t Have To)

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