Jean Chatzky, a prominent financial expert, warns that retirees commonly sabotage their financial security by failing to create a detailed spending plan for their post-work years. The biggest retirement mistake, Chatzky tells Kiplinger, is operating without a concrete budget or withdrawal strategy.
Many people spend decades saving for retirement but abandon their disciplined approach the moment they stop working. They lack a framework for determining how much to spend annually, which accounts to tap first, and how to adjust for inflation and unexpected expenses. This ad-hoc approach often leads to overspending early in retirement or, conversely, underspending out of excessive caution.
Chatzky emphasizes that retirement spending differs fundamentally from working-life spending. Your income no longer refreshes each month. Social Security provides a floor for some expenses, but most retirees depend on a combination of savings withdrawals, investment returns, and part-time income. Without mapping out these sources and allocating them to specific expenses, retirees operate in the dark.
A practical plan addresses several critical questions. When do you claim Social Security? Early claiming at 62 yields lower monthly payments than waiting until 67 or 70. Which retirement accounts should you withdraw from first to minimize taxes? Traditional IRAs, Roth IRAs, and taxable brokerage accounts carry different tax implications. How will you cover healthcare expenses before Medicare eligibility at 65? What happens if the market crashes in your first retirement year?
Chatzky's message reflects a broader financial planning principle. Retirement is the longest "project" most people undertake, potentially spanning 30 or 40 years. Treating it as merely an extension of your working years, where money appears automatically, invites trouble.
Creating a retirement spending plan need not be complicated. Start by listing your fixed expenses (housing, utilities, insurance)