About Us

Business and Finance

Five pitfalls to avoid in retirement
Written by Heather J. Miller Tokarz

You work hard and save aggressively so that one day you can retire from the workforce. When the fabled day arrives and you enter the blissful state of retirement, you may be tempted to think you’re done agonizing over your money and savings. The truth is the hard work is probably just beginning. Assuming you’re like most of us, with a finite number of dollars available to fund your retirement, you need a plan to make sure you are spending and investing in the most optimal way to make your money last as long as possible. Here are five pitfalls to avoid in retirement to help you preserve your assets and maintain your lifestyle for years to come.

Don’t retire too early
It’s difficult to predict how long you will live, but longevity trends suggest the likelihood of longer life spans for current and future retirees. If you retire at age 62, you could live another 20 or 30 years. Not only do you need to think about how long your money will last, you should also consider the consequences for taking early withdrawals from your retirement nest egg. Also consider that if you choose to take Social Security early, you agree to receive a reduced amount each month for the privilege of potentially more years of the benefit. Your Social Security statement can help you determine the financial trade-offs of taking early benefits or postponing Social Security income for a few years.

Don’t rely on just one form of income
You probably realize that Social Security is unlikely to provide you with enough money to live on in retirement, and that you will need additional sources of income to live comfortably. Most retirees look to a number of sources to cobble together a retirement income. Even though you’re retired, you can still seek out growth investments, assuming you retain a good share of your savings in less risky ventures. Seek balance by diversifying or spreading your savings across a variety of investments with varying levels of risk. A financial advisor can help you select from available stocks and bonds to keep your money working for you and help generate investment income.

Beware of insurance gaps
Your insurance needs may change in retirement, but they won’t go away. You may need to replace employer-sponsored benefits such as life, health and dental insurance after you retire. Shop around for attractive price points and good quality plans. Even if your home is paid for, you should maintain an appropriate level of homeowners’ insurance in case of theft, fire or other incidences. Consider whether long-term care insurance for you and your spouse is something you want to help pay for things like long-term care in a nursing home.

Avoid tax mistakes with retirement distributions
Your sources of income in retirement may include Social Security, a company-sponsored pension plan, IRA, 401(k) or a profit sharing plan. How you access your savings in these various investment vehicles can have a profound affect on how long your money lasts. The IRS regulates how much you can take out of your retirement accounts each year and you can incur stiff tax penalties if you do not abide by the rules. Talk to your tax preparer and financial advisor about required minimum distributions from your retirement accounts and establish a schedule of withdrawals that satisfies requirements while preserving principal. At retirement, you are generally required to begin taking minimum distributions from qualified retirement plans by April 1 of the year after you turn 70½.

Don’t underestimate the impact of inflation
When you estimate how much you need in retirement, don’t forget to consider how inflation reduces the value of your savings over time. Your budget should factor in rising health care costs and other expenses that may grow disproportionately. In general, early retirees spend more on travel and hobbies while they are still active and healthy; these costs may go down as you get older.

Get professional advice
A knowledgeable financial advisor can help you analyze your retirement portfolio and recommend steps to help you make choices with your retirement assets. Talk to your advisor and tax professional to plan your distributions to help reduce your tax obligation. With careful planning, you can effectively manage your retirement assets — and relax and enjoy the golden years.

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.
Diversification helps spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Diversification is not a guarantee of overall portfolio profit or protection against loss.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

As an experienced experienced advisor, Heather knows that everyone’s financial picture is different, and that priorities change depending on their time horizon, how they accumulated their wealth, and their long- and short-term goals. So Heather helps each of her clients develop a strategy tailored to their unique needs and goals.

She is licensed and registered to conduct business in VA. Based on licenses and registrations she holds, she may also conduct certain business in MD, NC. She has a BA in Russian Studies from Mercyhurst College and is an active member of the Ocean Front Jaycees.

For more information, visit www.ameripriseadvisors.com/heather.j.miller