For many of us retirement means the transition from the day-to-day grind of working to days of leisure, kicking back or puttering around and, best of all, no more schedules or alarm clocks.

The other important transition is from the final days of earning money through employment, to spending your money.

Even smart people can make financial mistakes when preparing for retirement whether they result from errors in judgment or fate.  Unfortunately, there are often no do-overs.

Related: 16 habits that helped me retire wealthy

Despite their best intentions, retirees tend to make these same mistakes over and over again.  Here are eight retirement mistakes to avoid:

Leaving work too early

Many people make the decision to retire too soon from a financial perspective.  In many cases working just a few extra years can have significant impact on the quality of your retirement for the remainder of your life.

Early retirees also elect to take CPP as soon as they are eligible at age 60 with reduced benefits.  If you can postpone applying for benefits, your payments will be higher.

Related: An easy way to estimate your CPP benefits

While many early retirees are extremely happy with their decision, unfortunately some are forced into retiring earlier than they might wish due to disability, health problems, or changes with their employer.

Not taking longevity into account

A 65-year-old man has a 40 percent chance of living to age 85; a woman has a 53 percent chance.  Planning for a 20 – 30 year retirement is not unrealistic.  Don’t underestimate medical expenses in the later years as well as long-term care costs.

Good preparation starts during your working career.  Explore reasonable ways to cover future health care costs.  Working past “normal” retirement age, or working part time can give savings a longer time to grow.

Related: What’s your retirement age?

Don’t be too conservative with your investments.  It may make sense for you to separate your assets into pools and invest one pool a little more aggressively.

Withdrawing too much from your retirement accounts

A popular guideline is to withdraw 4 percent of your retirement savings annually.  In the first phases of retirement many people tend to withdraw a lot more to fund a slightly more lavish lifestyle when they have so much free time to dive into hobbies, travel, and going out more.

Don’t sacrifice your future safety.  Keep some funds set aside for the unknown.  We can’t foresee all that could happen in the next 20 to 30 years, both financial disasters and life changing events.

Not having a tax-efficient retirement income distribution strategy

Another rule of thumb is to take your non-registered assets first to take advantage of continued tax deferment, but this may not always be the most advantageous.

Retirees are usually in a lower tax bracket, but retirement income comes from various sources that are taxed differently.  Look at your “bucket” of money to determine the most tax-efficient way to withdraw based on your circumstances.

Get a realistic idea of your tax bracket and have a plan for the least amount of tax liability.

Don’t just focus on returns

Instead of fixating on investment returns, retirees should be looking at turning their assets into predictable income.

RelatedBuild a retirement income plan

Some retirees wanting portfolio income may move their money to high dividend yield stocks or give up liquidity with certain investments.

People wanting more security will want to buy an annuity while those wanting to keep their assets invested could follow the 4 percent rule.  Be prepared to stick with it.  Don’t over-react to bear markets or hang on to risky investments too long.

Supporting (or bailing out) adult children

Supporting adult children can make it difficult to replace the money when you need it the most – then they’ll be supporting you!  Don’t be overly generous if it means possibly putting your own financial security at risk.

Putting education costs before retirement savings is a mistake.  There are no financial aid and scholarship programs for retirement.  Your children have their whole financial lives ahead of them – you do not.

Don’t be so overly concerned with leaving a legacy that you scrimp on living your best retirement life.

Failing to take control of your spending

When you retire some of your work and child related costs go down, but other expenses may go up.

Related: Why you should retire your debt before you retire

Pay off debt.  Make a budget that outlines core expenses and desired discretionary spending.  Include predictable expenses such as income taxes, and replacement and repairs to vehicles and homes.  Make sure discretionary expenses don’t start creeping up by revisiting, and if necessary, revising your budget annually.

Retiring with no plan or investment strategy  

You may miss out on investment opportunities and tax advantages.  Avoid making short-term investment decisions.  Acting on guidance from friends and family can be a mistake.  They don’t have investment secrets, nor do they understand your entire financial situation.

Willingness to follow off-the-cuff advice increases vulnerability to financial scams.  As you get older, the more chance of making unwise decisions.  Likewise, create a solid estate plan.

Final thoughts

After taking so much time accumulating your assets it can be hard to switch your mind set to spending.  Enjoy what you worked for your entire life.

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21 Comments

  1. Robert on April 22, 2014 at 10:39 pm

    Nice ideas Marie! I can add a few tweaks that I have noticed after a my first few months. They mostly pertain to the early going of retirement,

    First it is nice to have a wad for initial expenses, or retirement start-up. I found that in trying to cross the finish line I had a few things I planned on dealing with when I had the time. Buying tools for a new hobby, travel, some work on the car, some big dental work, some education expenses for courses, etc. None of these surprised me but the total cost did somewhat.

    Secondly, know yourself and plan accordingly. I am a bit of an introvert and spend most of my free time alone. This never bothered me. However, adding 50 hours more per week to my solitude is too much even for me. Fortunately I had a number of plans which do involve some interaction, and I have time to work it out before I go nuts. Others have different needs (maybe the opposite if you are married!). If I were extrovert I’d already have gone insane. It is good to think thoroughly about how you will spend your time and whether it matches your personal needs.

    Thirdly, think about your new needs a lot before buying things. For example, buying a new car for retirement day? What a reward! But will you actually be driving enough to warrant it? Similarly, many other purchases really reflect how your life was and it is now different.

    • Money Saving on April 23, 2014 at 7:16 am

      These are great additional tips! I like the idea of having a small splurge account built up to get all those extra things purchased first off vs. taking this from your retirement funds.

      • Boomer on April 23, 2014 at 8:06 am

        @ Robert, I agree with MoneySaving that these are great tips. That’s why I love it when people who are already going through certain situations – such as retirement, like yourself – give us the benefit of their experiences.

  2. Kathy waite on April 23, 2014 at 7:16 am

    I agree with Robert planning financially for retirement is key but I have seen a number of people shocked by the loss of the social interaction . Have also seen creativity , one widowed client instead of giving up her retirement dreams met two other ladies on a trip and now they travel together .

    • Boomer on April 23, 2014 at 8:09 am

      @Kathy waite: Yes, I agree. That is probably an important reason for retirees working part-time – for the social interaction rather than just the actual pay cheque.

  3. Alan on April 23, 2014 at 10:00 am

    I retired from my law firm at age 60 and chose to take early benefits from CPP. In retrospect that was a mistake because I really didn’t need the extra money. At that time it wasn’t possible to delay receiving benefits beyond age 65. One reason I did it is that I have a rather poor family medical history – but so far, so good! If I could have postponed OAS I would have done it, as most of it ended up being clawed back. I’ve found that what is most important as you move into retirement is that you remain socially connected, and keep looking for new adventures. If you sit looking at the walls, bored out of your mind, you won’t last long.

    • Rob Barfuss on April 23, 2014 at 11:58 am

      Whether to take CPP early or not is a matter of doing the math – to compare apples to apples, look at how much you’re getting in early retirement (say age 60) – and do a time-value calculation on what those funds would be worth at Age 65 (or whatever age you’d want to start drawing on) – and then take the difference in what you’re getting and what you would get and start subtracting that from your “pool” – then you’ll know where the break-even is.

      Of course, in the real world, this assumes that you’d actually save the early CPP if you took it.

      • Robert on April 23, 2014 at 4:41 pm

        It can be a fairly complicated formula with a lot of assumptions, to calculate when one should stop paying CPP premiums (heading toward 5,000 per year now), and the separate decision of when one should start collecting CPP benefits, which jump more than advertised by waiting after 60.

        I believe in the long run the main value in CPP is the indexing, provided they keep that for my lifetime. When you take CPP does not make a huge value difference, unless you know your lifespan.

        Alan’s point about OAS clawback is interesting. It is a nice problem to have since it means you are not poor. However it does complicate formulas in several ways.

      • Boomer on April 24, 2014 at 3:03 pm

        @Rob Barfuss: There are many opinions on whether to take CPP early or not with the break-even point somewhere around age 76 – 80. You also need to take into account the time value of money and – most importantly- whether you need the income.

        The drop out provision for calculating CPP eliminates your lowest earning years (17% of contribution history in 2014) which could affect the benefits received if someone retires early but elects to apply for benefits later on.

  4. Kathy Waite Eureka Investor Guidance on April 23, 2014 at 12:05 pm

    Single people often seem to take it early as they feel no one will “inherit it” if they don’t live long.

    Don’t forget if you go back to work you will have to pay CPP while taking it anyway until 65, the amount of your CPP will go up a little then.

    I agree with Rob , it usually gets spent not saved, if you are retiring with debt throw it on the debt.

    Kathy Waite Eureka Investor Guidance

  5. Rick Manjin on April 23, 2014 at 12:07 pm

    I always here about this annual 4.00% withdrawal rule from all of an investor’s or retiree’s investments but it seems to high these days.

    I think that a 2.50% to 3.00% withdrawal rate maybe more realistic and sustainable over 20 years and longer.

    If you withdraw more than that annually, there is a good chance of a retiree running out of money.

  6. Rick Manjin on April 23, 2014 at 1:41 pm

    Sorry, I made a typo it is hear not here. If annual GIC rates and government bond yields reach close to 5.00% like back in 2007 then a 3.50% to 4.00% annual withdrawal rate is more sustainable.

    • Robert on April 23, 2014 at 4:24 pm

      What if inflation tracks up at the same rate?

  7. Rick Manjin on April 24, 2014 at 7:28 am

    Robert, inflation is always a concern. The rising cost of living impacts the poor and middle class much more than someone or a family that has say $800,000, $1,000,000, $1,300,000 etc. or more.

    Accumulating a large investment base with reliable, steady income and growing this investment base and income is a better way to look at it.

  8. Dave D on April 24, 2014 at 8:40 am

    Great article and responses.

    I have a question on taking early CPP and receiving survivor benefits. It is my understanding that when one spouse passes away the surviving spouse receives a survivor benefit with their CPP limited to the maximum CPP, currently at $1038/mo.

    I have been looking for answers to this scenario.

    A couple just entering their 60’s are retired, one has poor health with poor prognosis for longevity and is receiving $500/mo in early CPP. The other was planning to wait until 65 to receive their non penalized CPP of $950/mo.

    If one of the couples passes away I assume that the survivor’s CPP would be increased to $1038 (in today’s numbers).

    My question is, if the healthy spouse also takes early CPP and receives the penalized amount, say $608 (a 36% reduction)and then one of them passes away, will the surviving spouse then receive $1038/mo for their remaining time regardless of age when the first spouse passes.

    It is unfortunate to have to ask such questions but the correct answer could have significant financial impact on this couple.

    Thanks in advance for any responses.

    • Robert on April 24, 2014 at 1:21 pm

      When I have questions like this I contact service Canada and go from there. The only opinion that will matter is that of those administering CPP.

    • Boomer on April 24, 2014 at 2:47 pm

      @Dave D: Briefly, the surviving spouse would get the survivor benefit stated on the statement of contributions – to a maximum of $1012.50 for combined payments. But it could be less. Here’s an example:
      At 60, M receives $468.69 per month. Survivors benefit from deceased spouses pension is $321.61. M would receive $790.30. If M’s monthly benefit was $705.86 and the survivor benefit was the same $321.61, M would receive the maximum of $1012.50.

      I agree with Robert to contact Service Canada for specific personal information.

  9. My Own Advisor on April 24, 2014 at 5:32 pm

    Great advice Marie. This reinforces the fact for me, and maybe for Robb?, that good cash flow in retirement is key.

    Unless the world turns upside down, which is always possible, I see a basket of 30-40 dividend paying equities from around the world as a key to financial independence, even in retirement.

    This would avoid as you put it, being too conservative with your investments.

    No doubt Robb has learned lots from you and I suspect although I don’t know for sure, he’s not relying on our government for cash in retirement. Anything he gets as part of CPP and OAS is a bonus. I think our cohort needs to look at retirement this way, otherwise, we’re sunk.

    The Boomers lived in an era of tremendous economic growth. We won’t and are not.

    Mark

  10. Chris on April 27, 2014 at 11:19 am

    Interesting post and all good advice. I think we all have a big decision to make on retirement. Do you live the lifestyle you always wanted and risk running out if money or do you live frugally taking your minimum RIF payments and live a stable somewhat low risk and potentially boring life. The people I know in retirement seem to live the life on the conservative side even though they don’t have to. It seems those who have the forethought and discipline to save for retirement can’t spend freely while those who are less prepared still have difficulty managing finances.

    My personal thought is to look at retirement in 5 year intervals assuming they start at age 65. Live the first 5 as an exciting new experience and spend to enjoy your dreams, your health won’t get better. The second five reevaluate your health, expenses and dreams and if you have them, do it again. If not you can always look back at hopefully the best 5 years of your life.

    I have been retired for 4 years and am living a very good lifestyle but not doing all of the things I want and can afford to do. This fear of running out of money is the chain around the elephants leg. I am coming to the realization that the human spirit wants to live forever so you will always have fear of running out of money. On that note and having recently lost my best friend I’m going golfing. Life is too short to worry about running out of money, worry more about running out of health and start living!

    • Alan on April 27, 2014 at 1:59 pm

      Good post, Chris. I read somewhere that you can look at retirement as a three stage process: Go-Go (roughly age 60 – 70), Slow-Go (roughly 70 – 80) and No-Go (80 plus). In other words do the things you’ve always wanted to do, sooner rather than later. I’ve seen so many examples of people living their early retirement too conservatively, ending up with health problems and not being able to go anywhere or do anything.

  11. tom on August 3, 2014 at 6:47 pm

    We both retired last year. After losing a considerable amount in 2008 market, we opted out of the market and have left the remainder in a savings account. It doesn’t make much interest, but we feel it is more secure. We travel quite a bit, take cruises and enjoy a carefree lifestyle. We don’t know how long we can continue this way, but we have our health and that is the important thing. We have saved all our lives and are debt free. It is important for people to enjoy life while they are healthy. Saving for retirement is key.

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