The years just before retiring, when you're in your 50s and 60s, are the most critical to having a successful retirement. Typically, these are your peak earning years, when many of your larger expenses—such as buying a home or funding your children's college educations—are finished.
But as you take the final turn before retirement, there can be challenges to having enough money to live on when you stop working. Younger people have time on their side to catch up or recover from poor choices or unfortunate circumstances. In later years, time may not be the only thing you're running out of. You may not have the same opportunities to restart at this age.
Here are some things to avoid when you're in your final preretirement years, because the outcome is all too often financial disaster.
1. Spending too much. Many people in their 50s and early 60s enjoy earning more money than ever before in their careers. With the kids in or finishing college and equity sitting in their homes, there is more disposable income and more time to spend it.
A lot of families end up going one of two routes: either spending freely on many things they perhaps denied themselves before—such as expensive trips, dining out frequently and shopping trips—or remaining focused on building up their nest eggs to make sure they'll have enough when they retire.
It's not hard to guess which ones end up in trouble. People who increase their spending along with their income instead of saving those extra dollars for a retirement that may last 30 years can end up running out of money down the road.
2. Using accumulated assets to fund spending. Even worse than spending most or all of a paycheck to live a high lifestyle is spending down accumulated savings while still working. Many people see this pool of assets sitting there and find it tempting to tap the portfolio for the new car or that trip to Europe. It's easy to justify taking some of your savings for things you may have denied yourself over the years. But living beyond your means, relative to your income—especially when you are in your final years before retirement—rarely ends well.
3. Not having a retirement plan. It never ceases to amaze me that so many people just don't have a retirement plan. You must take the time to consider what your retirement will look like. So many people really don't know if they have enough money set aside for retirement or understand what amount they will need to save while still working. Without a plan, how will you know if you have enough?
Once you begin your retirement, it's just too late. At that point, the only thing left to do is alter your lifestyle and cut expenses.
4. Turning recurring income into a recurring liability. This situation the "lottery winner's folly." Most lottery winners go bankrupt because, rather than saving and investing their winnings, they buy high-priced toys that not only depreciate but come with hefty annual expenses as well. That's the boat or the equine hobbies.
Not only is money being taken out of a portfolio that could grow and provide income but the purchases will decrease in value and come with added costs—so it's a double whammy. Reducing income and adding expense is a disastrous combination for most retirees' portfolios.
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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
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