Over 60% of respondents to a 2023 study said they’re more afraid of running out of money in retirement than they are of death. Though future inflation and stock market volatility top the list of reasons they fear outliving their money, in reality many retirees put themselves in jeopardy due to mismanaging their retirement income.
Driving Up Credit Card Balances In Retirement
It’s a well-known fact that carrying high credit card balances into retirement puts you at a financial disadvantage. But what about using credits cards once you retire? When retirees find themselves using a credit card to pay for dinner, travel expenses, or even an emergency as discussed below, it’s a red flag that indicates they’re living beyond their means. For federal retirees, this type of debt can lead to tapping into your traditional Thrift Savings Plan (TSP) more than you originally planned then owing taxes on your withdrawals.
“If it looks like your current housing costs will take huge bite out of your retirement income, starting thinking about downsizing while you’re still working.”
Paying More For Housing Than You Can Reasonably Afford
A basic rule-of-thumb advises that, whether you’re renting or making mortgage payments, your housing costs shouldn’t exceed 30% of your income. However, a recent report found 45% of older homeowners with a mortgage, and 55% of renters, are considered “housing cost burdened.” In fact, a study conducted by the Center for Retirement Research indicates 46% of homeowners age 65 to 79, and one out of four over age 80, are still paying off a mortgage. If it looks like your current housing costs will take huge bite out of your retirement income, starting thinking about downsizing while you’re still working.
Not Having An Emergency Fund
It’s not a matter of if you’ll be hit with a financial curveball in retirement, it’s a matter of when. The question is – where will you get the money to cover the costs? A credit card? A personal loan? Your TSP? All of these options can put your financial future at risk. If you’re five or more years away from retirement, start putting as much money as you can in an emergency fund you can use for a rainy day. To get started, think about setting up from automatic transfers from your paycheck and your tax return to your emergency account.
Other ways retirees mismanage their income include is underestimating the impact of inflation, Not planning for the cost of uninsured long-term car. Or, not planning for the loss of Social Security income when a spouse passes away. Consider working with an FRC® trained advisor who can show you the big financial picture of your federal retirement.
