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5 Early Retirement Mistakes to Avoid

Whether you’ve been forced to retire earlier than expected or have worked hard to retire early, there are five common mistakes to avoid if you want to get the most out of your post-work life. By being aware of these early retirement mistakes you can plan accordingly to be set financially, mentally, emotionally and physically.

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1. Rolling Over Your IRA

As you approach early retirement, you might be wondering what to do with your workplace retirement account. In most cases, you’ll roll those funds into an Individual Retirement Account. The problem with that is, if you’re retiring early, you might have to withdraw those funds earlier than expected. You will face an expensive tax bill since that is a violation of the complicated IRS rules regarding IRA withdrawals.

Additional IRA rollover problems include:

  • Rolling money into an investment that is actually more expensive than what you currently own. You’ll end up paying expensive fees annually and can be talked into variable annuities since they receive higher commissions.
  • An advisor might persuade you to cash out your pension since they’ll earn a commission. It will be harder for you to match what that pension would have paid.
  • If you don’t withdraw steadily, the fees and penalties could deplete your account faster than expected.
  • You might be tempted to seek high returns through a self-directed IRA, but these investments are extremely risky and could end up costing you a fortune.

To prevent these mistakes, educate yourself about the risks involved with rolling over your IRA. Consult a financial advisor whom you trust or seek information from trusted sources like Kiplinger before making any rash decisions.

2. Spending Too Much Too Quickly

Life expectancy has been steadily increasing. While that’s incredible news, it does present a serious problem for those who retire early: If you spend too much money too quickly, you won’t have enough to enjoy the rest of your retirement. The standard 4 percent safe withdrawal rate won’t be as effective for early retirees, who should consider keeping their first-year withdrawal under 3 percent of their portfolio.

The best way to keep your withdrawal rate low is to have a detailed budget before retirement. Besides taking into account recurring expenses, don’t forget about any potential one-time expenses, like auto or home repairs.

The Vanguard Group has a useful retirement expense worksheet to help create your budget.

Letter blocks spelling out Social Security, for article on early retirement mistakes.

3. Taking Social Security Too Early

Even though you’ll be able to start collecting Social Security benefits at the age of 62, you’re better off delaying that in most circumstances. For starters, if you collect your Social Security income at 62, you’ll only receive 75 percent of your monthly benefit. If you wait until age 70, you will receive 132 percent.

While there are some situations in which you might need to apply for Social Security income earlier than expected, such as not being able to find full-time work, you should plan ahead so that you can delay collecting. The Social Security Administration has a benefits calculator that can help you plan to optimize your benefits.

4. Not Considering Future Medical Costs

Because you’re younger than traditional retirees, you’re generally in better health. While this is a nice perk, it’s also a little misleading. Because you’re in excellent health now, and potentially for the next several years, you might not be considering future medical costs.

Fidelity Investments estimates that a 65-year-old couple who retired in 2015 will spend $245,000 on health care throughout retirement. Believe it or not, that figure doesn’t take into account any long-term costs.

Start planning for health care costs as soon as possible in your early retirement to avoid potential financial problems down the road.

Letter blocks spelling out Retirement, for article on early retirement mistakes.

5. Getting Bored

With so much time on your hands, it’s easy to become listless. The troubling part of being bored is that this can lead to your spending more money or even possibly develop health problems such as depression.

To prevent boredom, consider volunteering, working part-time, learning something new in a class or workshop, finding a new hobby, exercising regularly, or participating in the myriad of activities offered in senior living communities.

How did or have you planned for early retirement? Share your tips in the comments.


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    1. […] start preparing for retirement as soon as possible. Set aside money for a nest egg and avoid common early retirement mistakes like rolling over your IRA, taking Social Security too quickly and not planning for expenses like […]

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