If you’re newly retired in 2024, or if you’re planning to leave the workforce for good this year, you’ll want to be sure you’re on a solid financial path so you won’t have to spend the rest of your retirement worrying about money.
To make certain you have the funds you need for your future, there are three major errors you need to avoid. Here’s what they are.
1. Not making a budget
When you retire, your life is going to change in important ways. You’re going to be relying on new sources of income such as Social Security and distributions from your 401(k). You may also be spending more on some things, like travel, and less on others, like work clothes or your commute to your job.
You need to make sure you have enough income coming in to cover all your costs, which means you need a budget.
It’s best to make one as soon as you retire, or even before, so you can figure out all your expenditures and make sure your income will cover them. After all, you don’t want to get halfway through the year and find you’ve already spent all you can afford to take out of your retirement accounts — but still have tons of expenses left.
You can use a simple spreadsheet or an app to make your budget, but the important thing is that you make one so you know where your money is going and confirm you have enough of it.
2. Not being strategic about when to claim Social Security
As a new retiree, Social Security will be an important income source. If you haven’t claimed it yet, you’ll want to be strategic about when you do — not taking time to consider this choice carefully could be a huge mistake.
You could claim benefits right at your full retirement age to get your standard benefit, or you could file for benefits before that to get smaller monthly checks but more total payments. You could also delay claiming benefits so your monthly payment amount would continue to increase until you turn 70.
If you expect you’ll live a long time or you have a lower-earning spouse who’s likely to rely on survivor benefits, a late claim may make strategic sense, as you could end up with more lifetime benefits. If you are concerned about your health and your spouse won’t be relying on your survivor benefits after you’re gone, you may want to claim early so you can start receiving money.
The important thing is to understand how your age when you claim benefits affects your income and make an informed choice about what claiming age is best for you.
If you have already claimed Social Security benefits, this may not be a concern — although if it has been less than 12 months since you started them, you could always rescind your claim if you decide you made the wrong choice. You’d have to pay back any money you already received, but this would allow you to delay the start of your benefits and increase your future check if you want to do so.
3. Withdrawing money without setting a safe withdrawal rate
Finally, taking money out of your retirement accounts without deciding on a safe withdrawal rate is an error you can’t afford. You don’t want to take too much money out too quickly and find yourself draining your account dry.
You can use the 4% rule as a good rule of thumb, withdrawing 4% from your account in the first year of retirement and then taking out more each year to keep pace with inflation. While there’s some concern that your money won’t always last if you use this approach — due to longer life expectancies and lower projected returns compared to when the rule was created — many experts still advise it as a simple approach to figuring out how much to withdraw.
The most important thing, though, is having some system to ensure you won’t leave yourself with too little to live on in late retirement.
By avoiding these three mistakes, you can hopefully ensure your retirement goes well and that you have plenty of money to enjoy your later years.