Don’t Crack Your Nest Egg

fortpitt in Wealth Management 27 February, 2014

It is a nasty habit that even the wealthiest retirees cannot seem to ignore — attempting to maintain the amount of spending that you have become accustomed to throughout your working years. Failure to adjust such spending habits appropriately could place you in a retirement bind later in life. Below, we outline some of the biggest mistakes we’ve seen impacting nest eggs, as well as action items that can secure your golden years:

Common retirement mistakes:

  • Hesitating to work with an advisor. While a DIY-attitude may have aided you in your working years, it can be detrimental in retirement. This is especially true when you have numerous sources of income that need to be closely monitored and managed. The hesitancy to work with an advisor can lead to missed opportunities and wasteful spending that will ultimately harm your retirement. 
  • Losing sight of the bigger picture.  Even for clients who may not have children or may not be charitably inclined, this does not mean that the money that would have allotted for these things should be spent thoughtlessly. Take advantage of the work-free lifestyle that retirement can provide, but remember that it is also a 20 to 30 year experience that needs to be paced and comfortable.
  • Hasty decisions.  If a financial decision is not acted upon in an opportune manner, you can lose out on the luxury of time and options. In order to avoid financial and emotional stress, make sure to have your financial affairs in order and seek help before funds dwindle to the point that it may impact your retirement lifestyle.

Smart retirement considerations:

  • Downsizing a home. Downsizing in retirement is a great way to cut costs and generate income (from the sale of a larger home) that can then be placed into an emergency fund or spent otherwise.
  • Outline wants vs. needs. No longer use that gym membership that you swore you would? Do you really need the newest model of that sports car? In retirement, it becomes increasingly important to establish what you truly need versus what is merely a luxury.
  • Developing a yearly budget.  An annual check-in is essential to monitoring the state of your portfolio and ultimately staying on track throughout the entirety of your retirement.
  • Making decisions based upon “excess” or “leftover” funds. While it may be nice to take an annual vacation or splurge on a luxury item, big purchases should be made when the funds are available to do so. For example, in 2008 a vacation may not have been possible due to stock market returns. However, a client may feel more comfortable in the current environment to make that trip possible.

To avoid future financial dilemmas, it is essential to take an honest look at, and engage in a frank conversation about, budgeting and expenses. Understanding what is necessary and what is merely frivolous will lead you to smarter decisions that will maintain your nest egg.

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