Highlights;
- Retirees risk reducing purchasing power by moving too conservatively, limiting flexibility against inflation.
- Overfocusing on current income can miss growth opportunities.
- Holding excessive cash may erode value through inflation.
- Ignoring tax implications can increase financial burdens in retirement.
Retirement and Wealth: Avoiding Common Financial Pitfalls
Once you reach retirement, it might be tempting to relax and enjoy the fruits of your labor. However, some individuals may find it appealing to shift focus away from building more wealth during this phase. This can be a misstep, as retirement often lasts longer than anticipated, and maintaining financial growth is crucial.
Financial experts weighed in, revealing four common mistakes retirees make that hinder wealth accumulation, as reported by GOBankingRates.
1. Moving Too Conservatively, Too Soon
Chris Heerlein, CEO of Reap Financial, highlights that many retirees shift too aggressively to conservative investments. He advises against moving entirely into fixed-income assets, emphasizing that such a strategy can erode purchasing power over time and fail to account for inflation or healthcare costs. Retirement, Heerlein notes, isn’t the end of investing but a new phase requiring smart growth strategies.
2. Misaligned Financial Focus
Heerlein also points out that retirees often prioritize immediate income over future opportunities. A stable income is important, but reinvesting returns or engaging with long-term trends can enhance financial flexibility. Successful retirees, he suggests, maintain a 20-30% allocation in growth-oriented assets, allowing adaptability without depleting principal.
3. Holding Excess Cash
Christopher Stroup of Silicon Beach Financial notes that retirees often hold too much cash, which can lose value due to inflation. Stroup recommends balancing liquidity with growth through diversified investments, offering a smarter approach to wealth management.
4. Underestimating Tax Implications
Stroup also emphasizes the importance of understanding taxes in retirement. Ignoring how required distributions, Social Security, and investment income interact can lead to higher tax burdens. Strategic tax planning is essential to preserve wealth and reduce future liabilities.
Conclusion
Retirement is a significant life phase, and avoiding these financial missteps can help maintain and grow your wealth. By staying informed and adjusting strategies, retirees can navigate this chapter wisely.
This article originally appeared on GOBankingRates.com.
The views expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.
Source: https://www.nasdaq.com/articles/4-wealth-building-mistakes-retirees-keep-making
