The Worst Pre-Retirement Mistakes You Can Make If You’re Over 50
If you’re close to retirement, you’re probably excited and thinking about how you’ll spend the next couple of years. Although it’s great you’re almost at the finish line, don’t forget to pay attention to your finances. Small missteps before retirement can lead to big headaches down the road. Protect your financial future by making sure you’re not making these pre-retirement mistakes.
Here are the absolute worst pre-retirement mistakes you can make if you’re over 50.
1. Paying college bills for children and grandchildren
Believe it or not, some retirees and pre-retirees have significant student loan debt. The last thing you want is to have student loan payments dragging you down and following you into retirement. This added expense will make it a lot harder for you to live comfortably.
The number of people age 60 and older who have student loan debt has quadrupled over the past decade. The Consumer Financial Protection Bureau found this age group is the fastest-growing segment of the student loan market. Over the past five years, older Americans with student loans have saved $182,000 less for retirement. This will result in a $1.3 trillion retirement savings gap by 2021, according to AARP’s 2017 Financial Innovation Frontiers study.
2. Prematurely withdrawing money from your 401(k)
If you’re close to calling it quits, now is not the time to start taking money out of your retirement accounts. Using that money prematurely will likely put your golden years in jeopardy. Know that if you want to make contributions to your plan later on, you’ll generally be required to wait at least six months after you receive a 401(k) hardship distribution. That means you lose the value of having your money invested in the markets.
Furthermore, you’ll owe taxes and penalties. You will be required to pay taxes on the distribution because it’s considered income. Also, if you are less than age 59 ½, you’ll also owe a 10% early withdrawal fee.
3. Not contributing to an emergency savings fund
Although you won’t be working any longer, that doesn’t mean you won’t have emergencies. Life is unpredictable, and an emergency can crop up at any moment. That’s why it pays to have a cash cushion set aside for life’s curveballs. Your credit card is not the best way to bridge the gap in an emergency. Having cash is best because you won’t have to worry about paying interest and incurring late fees.
4. Failing to create a retirement budget
Your finances will change significantly during retirement. That’s why it’s important to create a retirement spending plan to help you get a handle on your money during this new phase in your life. Although some of your expenses will decrease (such as transportation costs and clothing), other expenses will likely increase. Make space in your budget for medical costs, housing, and food.
5. Lending money to friends and family
Although you might want to help family and friends, it doesn’t pay to be too generous. This is especially true if you’re strapped for cash or you’ll need the money soon. Chances are, you’ll never get the money back, so don’t hand out loans close to the time you plan to leave the workforce for good.
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