Source: 401kcalculator.org via flickr
If you've made it to retirement age with a comfortable nest egg, or it looks like you're going to, congratulations! However, even though you've done well so far, you're not completely on Easy Street. Good money habits are just as important to maintain throughout retirement as they are when preparing for it. With that in mind, here are three money mistakes our analysts would like to see retirees avoid.
Dan Caplinger: After spending a lifetime of saving up for retirement, many retirees fail to consider how best to access their savings once they start spending it down. In particular, with a combination of 401(k)s, Roth and traditional IRAs, and taxable accounts, it can be challenging to figure out how best to withdraw from your sources of cash in order to cover your living expenses.
There's no one answer that fits for everyone, but keep a few things in mind. First, you'll have to make required minimum distributions from traditional IRAs and 401(k)s when you reach age 70 1/2, and when you do, the money you take out will be treated as taxable income. The resulting increase in your adjusted gross income for tax purposes can have further consequences, such as putting you over the threshold for taxing your Social Security income.
If you have Roth IRA money, you can tap that instead with no tax consequences, and taking a balanced approach can leave you with exactly the taxable income you want in order to take advantage of all the tax breaks available to you. In addition, if you have long-held stocks with big capital gains, you have control over when you pay tax on those gains. Be careful about timing sales so that you keep a lid on any potential tax liability.
By keeping taxes in mind when spending, you can make sure you take money from the right sources and keep your finances in the best shape you can.
Jason Hall: You have a lot of things you want to do when you retire -- maybe traveling the country in an RV, or spending every weekend on the high seas in your own boat. You may decide it's time to finally buy that cabin in Colorado.
These are laudable aspirations, but there's a solid chance that you could be making a big financial mistake if you act on those dreams too quickly, or commit too heavily.
Before you jump into a major investment like a recreational vehicle, boat, or second home, try out a rental option first. Even if it costs a lot of money to rent an RV, house, or boat for a few weeks or a month, it'll give you a real chance to make sure your dream matches the reality of ownership.
How many retirees do you know that made the big investment, only to rarely use that RV or house in Vail? When you factor in the time (and cost) to maintain and repair them, there's a good chance your dream turns into a nightmare. There's a reason boats are called "holes in the water into which you throw money."
Matt Frankel: One money mistake to avoid after retirement is moving all of your assets into "safe" investments like bonds and out of the stock market completely. While it's true that you should get more conservative with your money after retirement, a portion of your portfolio should always be invested in assets that can produce income as well as grow your savings, specifically high-quality dividend stocks.
There are a couple of issues with holding nothing but bonds. First of all, as interest rates rise, bond prices tend to get clobbered. If you buy 30-year Treasury bonds paying 4% interest and rates rise mildly to 5%, you could see the value of your bonds drop by more than 20%. Now, if you aren't planning to sell anytime soon, this may not seem like much of a big deal, but if you get into a bind and have to liquidate some of your investments, this could cost you thousands.
Second, bonds do nothing to help your portfolio keep up with inflation. Sure, you get a consistent income stream, but your principle remains the same. Over time, your cost of living will rise with inflation, and you'll be forced to sell some of your investments just to meet your needs.
As a general rule, subtract your age from 110, and that's about how much of your portfolio should be in stocks. So, a 70-year-old should still have about 40% of their portfolio in high-quality dividend stocks, as this will not only serve as a hedge against interest rate spikes, but it will also go a long way toward ensuring your money lasts as long as you do.
The article 3 Money Mistakes to Avoid Once You Reach Full Retirement Age originally appeared on Fool.com.
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