This article takes a look at the 30 careless ways retirees waste their savings. If you wish to skip our detailed analysis on the common mistakes that drain retirees’ savings, you may go to 10 Careless Ways Retirees Waste Their Savings.
Common Mistakes That Drain Retirees’ Savings
According to Morgan Stanley (NYSE:MS), the financial services industry frequently paints the picture of retirement as a journey toward “income replacement”. Potential retirees spend their working years accumulating a substantial nest egg so that when they retire, they may begin to derive income from their investments. While the process seems relatively straightforward, the reality paints a stark contrast. This is because the investment landscape is quite tumultuous, considering the S&P 500 Index is currently undergoing its most significant correction since 2020, as noted by Smart Asset. What should potential retirees do to navigate such landscapes? According to The Charles Schwab Corporation (NYSE:SCHW), an esteemed investment firm, diversification is one way to go about such investment landscapes.
For many individuals, adopting these measures on their own is a complex task. Drawing insights from its Personal Choice Retirement Accounts (PCRAs), a self-directed brokerage account residing within defined contribution retirement plans, The Charles Schwab Corporation (NYSE:SCHW) unveils shocking statistics about how taking help from financial advisors can prove to be financially rewarding. In the first quarter of 2022, participants who had the help of financial advisors boasted an average balance of $535,354. This figure starkly contrasts with the $286,008 average balance among non-advised participants. This contrast also attempts to highlight the substantial advantage brought by expert financial guidance, thereby bringing us to the conclusion that one of the biggest financial mistakes retirees make is underestimating the role of financial advisors in retirement planning.
According to a recent BlackRock, Inc. (NYSE:BLK) report, recent retirees are reporting higher levels of anxiety and pessimism than those who have been retired for ten or more years (63% vs. 58%). Among the top concerns that such recent retirees have is that of healthcare and major investment loss. Rightly so, the BlackRock, Inc. (NYSE:BLK) report reveals that one in three recent retirees (32%) believe it would be emotionally difficult to bear an investment loss, as opposed to one in four of those who have been retired for longer.
“For too many people, investing and retirement planning are all about an intangible future. But what we found is that there are immediate benefits for those who start early. Much as physical exercise has both short- and long-term benefits, focusing on retirement planning helps alleviate stress and improves your overall well-being today.”
– BlackRock, Inc. (NYSE:BLK) President Robert Kapito.
With that said, The Charles Schwab Corporation (NYSE:SCHW) rightly asserts that working with a financial advisor can help savers work up a suitable strategy for their finances. This in turn helps alleviate some of the stress associated with working towards their retirement goals. For what it’s worth, maneuvering through the financial vortex as highlighted by Goldman Sachs means individuals may not have enough to spare for professional advice. Indeed, their report sheds light on a significant finding: nearly half of working respondents (47%) opt to manage their retirement savings independently. What’s particularly striking about this statistic, as revealed by The Goldman Sachs Group, Inc. (NYSE:GS), is not just that the retirees are self-managing, but the alarming lack of financial literacy among this demographic. Only 13% of respondents managed to answer all financial literacy questions correctly, exposing a concerning gap in understanding and preparedness.
This brings us to the significance of financial literacy in preparing for retirement. Saving for retirement is a long road, so it’s only wise that these savings are managed wisely. With that said, let’s check out all the careless ways retirees waste their savings so that such pitfalls can be consciously avoided.
A brokerage employee huddled with a group of retirees discussing retirement portfolios.
Methodology
To compile the list of careless ways retirees waste their savings, we began with a meticulous review of forums, surveys, and comparable secondary sources. Each identified oversight was counted as a point, facilitating the ranking of careless ways from least to most prevalent based on accumulated scores. These mistakes were then ranked in an ascending order from the lowest to the highest scores.
By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a similar consensus approach, we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). Whether you are a beginner investor or a professional one looking for the best stocks to buy, you can benefit from the wisdom of hedge funds and corporate insiders.
Here are the 30 careless ways retirees waste their savings:
30. Overspending
Insider Monkey Score: 7
According to a 2023 Retirement Confidence Survey by the Employee Benefit Research Institute, 49% of retirees stated that their overall spending is higher than they had expected it to be. The EBRI survey revealed that while 33% and 29% of retirees were overspending on healthcare and housing, 29% were overspending on travel and entertainment.
29. Failing to Prioritize Preventative Care
Insider Monkey Score: 9
According to the U.S. Department of Health and Human Services, people aged 65 and above spend nearly twice as much of their total expenditure on healthcare costs when compared with the general population. Neglecting healthcare leads to a further deterioration of health, in turn leading to increased costs in the long run.
28. Failing to Downsize
Insider Monkey Score: 11
Next up on our list of careless ways retirees waste their savings is failing to downsize. When retirees don’t downsize, they miss opportunities to cut down on many of their expenses such as utilities, maintenance, property taxes, and even mortgage or rent payments.
27. Getting Lured in By Financial Scams
Insider Monkey Score: 13
Retirees are often found to be more vulnerable to scams, possibly because of social, emotional, and cognitive problems. Due to reasons such as dementia or cognitive impairment, a senior may fail to use good judgment and possibly get lured in by financial scams. The best way to avoid losing money is to consult a trustworthy family member, or consistently educating oneself regarding these scams.
26. Remodeling Your Home
Insider Monkey Score: 15
Making a large purchase or remodeling one’s home early on in retirement may feel safe but it can put a big dent in retirement savings. Retirees must not indulge in extravagant behavior since they don’t always have new income sources to replenish their nest eggs.
25. Frequently Dining Out
Insider Monkey Score: 19
Dining out is a luxury that should be availed now and then. However, turning this into a habit can turn out to be one of the many careless ways retirees waste their savings. Home-cooked meals are better not just because they are healthy, but also because they make your savings last longer.
24. Making Risky Investments
Insider Monkey Score: 21
Retirement is not the time to go all in. It’s the opposite. Since your investments are all that you depend on, there should be less risk in your portfolio than before. A financial advisor can help you offer the best advice based on your financial situation.
23. Overlooking Tax Implications
Insider Monkey Score: 23
When retirees are ignorant of tax implications, they end up paying more taxes than necessary. They also miss out on various potential tax-saving opportunities. Here are 13 overlooked tax deductions for retirees that could save them money.
22. Overlooking Opportunities for Senior Discounts
Insider Monkey Score: 25
Another one of the careless ways retirees waste their savings is by overlooking senior discounts. Retirees may not know that there may be many potential senior discounts that they are missing. While it may take a little research, it saves them a lot of money in the long run.
21. Failing to Seek Professional Advice
Insider Monkey Score: 27
A financial advisor helps individuals by optimizing retirement savings and investment portfolios. Neglecting the help of such advisors can lead to costly financial mistakes, and even missed out chances to maximize wealth.
20. Underestimating the Impact of Inflation on Savings
Insider Monkey Score: 29
One of the biggest financial mistakes retirees make is underestimating the impact inflation can have on their savings. When a retiree fails to estimate the impact of inflation, they end up setting unrealistic withdrawal rates and risk losing their money faster.
19. Failing to Compare Prices
Insider Monkey Score: 31
Another careless way retirees waste their savings is failing to compare prices. Comparing the prices of items such as food, clothes, and other items of purchase across different places can help retirees find the best bargains and potentially save a lot of money.
18. Failing to Utilize Community Resources and Services
Insider Monkey Score: 33
By failing to tap into community resources and services, retirees tend to miss out on availing services and resources that they could have obtained either at a discount or even free.
17. Keeping Multiple Vehicles
Insider Monkey Score: 35
Having multiple cars means car payments for more than one, more insurance, more maintenance, and more fuel costs. This is why once you enter retirement and have a fixed income, downgrading to a single reliable car is best.
16. Excessive Travel and Entertainment
Insider Monkey Score: 37
One of the biggest expenses in retirement can come from travel and entertainment. We’re not saying retirees shouldn’t splurge every once in a while, but careful planning and traveling to budget vacation destinations can help use less of your nest egg.
15. Owning Multiple Homes
Insider Monkey Score: 39
Owning multiple homes means you are wasting your savings on extra maintenance costs, real estate taxes, and more. This is why it’s advised to keep a single home in your golden years.
14. Paying More Taxes
Insider Monkey Score: 41
Choosing the wrong state, city, or retirement plan for retirement can result in paying excessive taxes beyond what is necessary. This is why retirees favor states like Florida and Texas which are the best states that don’t tax retirement income, have favorable costs of living, and offer a comparatively lower overall tax burden.
13. Ignoring Home Maintenance
Insider Monkey Score: 43
Similar to neglecting your health, disregarding home maintenance can lead to significant costs accumulating over time. This is one of the many careless ways retirees waste their savings. To avoid this, it’s important to deal with home maintenance as and when it occurs.
12. Buying Unnecessary Insurance
Insider Monkey Score: 44
Retirees often stay invested in life insurance products they are no longer getting any value from. This is another one of the careless ways retirees waste their savings.
11. Continuing Unused Subscriptions and Memberships
Insider Monkey Score: 45
Being a senior means often becoming forgetful of stuff you brought, services you subscribed to, or memberships that you once enjoyed. The continued usage of such memberships and subscriptions is a major way retirees risk diminishing their nest eggs.
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Disclosure: none. 30 Careless Ways Retirees Waste Their Savings is originally published on Insider Monkey.