One temptation recent retirees may face is the urge to spend their money too freely in the early years. It’s a temptation derived from a common perception that “I should spend more while I’m younger. Later on, I might not be able to enjoy them quite as much.”
There are a couple of problems with that logic. For one, your financial needs later in life might increase because of health concerns and costly living assistance. Another problem is that you may live longer than you expect, which could mean running out of money if you overspend in your early years.
While current life expectancy in the U.S. is about 81 years for women and 76 for men, those numbers climb as people get older, according to the Centers for Disease Control.ii If you’re a 65-year-old male, for instance, you would be projected to live to be about 84, while a 65-year-old woman would be projected to live to about 87, according to the Social Security Administration.iii You could say that the longer you live, the longer you’ll live. And your retirement assets will need to last longer, too.
With a longer life and the uncertainties of future health care costs -- as well as other surprise expenses – there are simply too many “unexpecteds” in the future to justify overspending your retirement dollars now. You may pay later.
Another temptation is taking early retirement. That’s not always by choice. Health concerns and job loss often make that unavoidable. But some people retire earlier than they should.
That may be because they simply don’t want to wait, particularly when they can start collecting Social Security at age 62. But that also means they’ll get 75% of the retirement benefit they would receive at age 66, according to the current guidelines of the Social Security Administration. Retire at age 70, and you’ll get 132%. Taking your Social Security early means less income per month for the rest of your life. And by retiring early, you’ll also be withdrawing earlier from your other retirement assets.