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15 Mistakes Smart People Make in Retirement

Americans make plenty of mistakes when it comes to planning for retirement, the biggest of which is not saving enough. In fact, a recent recent GoBankingRates survey found that 1 in 3 Americans has saved nothing for retirement.

However, even if you have made saving a priority, you still can make missteps once you leave the 9-to-5 that will put a comfortable retirement at risk. Here are 15 common mistakes people make in retirement — and how to avoid them.

1. Claiming Social Security Too Early

More than one-third of baby boomers take advantage of the option to claim Social Security benefits early at age 62, according to the Center for Retirement Research. But taking benefits before full retirement age results in a permanent reduction of as much as 25% of your benefit, said Patricia Cathey, an investment advisor with financial services firm Smart Retirement in Denver.

Full retirement age is 66 for those born between 1943 and 1954 and gradually increases until it reaches 67 for people born after 1959. “Waiting to claim Social Security is one of the best things you can do to boost your income in retirement,” Cathey said. “And there's a big bonus for delaying your claim beyond your full retirement age: Your benefit will grow by as much as 8% a year from your full retirement age up until age 70.”

Read more: 11 Reasons Why Every Retiree Needs to Go on a Cruise

2. Continuing to Work After Claiming Social Security

If you start receiving benefits at 62 and continue to work, you will lose $1 in benefits for every $2 earned above the annual limit of $15,720. The year in which you reach full retirement age, you will lose $1 in benefits for every $3 earned above the annual limit of $41,880. That continues until the month you actually reach full retirement age — at which point the limit disappears. [Those withheld Social Security benefits are not permanently lost, however. Once you reach normal retirement age, your benefits will be permanently increased to account for the missing amounts.--MONEY editors]

3. Carrying Debt Into Retirement

Having debt in retirement when you are on a fixed income makes you vulnerable to financial hardships because it leaves you with less money to cover unexpected expenses, Cathey said.

Cathey recommends you pay off all debt before you retire. But if that’s not possible, have a plan to have it paid off by a certain date in retirement.

In particular, you should focus on paying off your mortgage, because it is the biggest monthly expense for most people, said Robert Steen, enterprise advice generation director for retirement and complex financial planning for USAA, which offers financial services for members of the military.

4. Being Too Conservative With Investments

Many retirees shy away from holding stocks in their retirement account portfolios because they fear losing money in a market downturn. By avoiding stocks, though, they are trading off one risk for another — not having enough growth potential in their portfolio to outpace inflation, Steen said.

Although stocks are often volatile over short periods, they tend to outperform bonds and other conservative investments over long periods, said David Walters, a certified financial planner and portfolio manager with Palisades Hudson Financial Group‘s Portland, Ore., office.

“Retirees need to understand that the period of their retirement can be upwards of 30 years, and they need their portfolio to support them throughout this entire period,” he said. “So while it is important to keep the risk of the portfolio in check, some allocation to stocks is warranted.”

5. Being Too Aggressive With Investments

Some retirees become too aggressive with their portfolios to achieve better returns, said Corey Sunstrom, a Charlotte, N.C.-based certified financial planner with Hobart Financial Group. “The truth is, aggressive investors aren’t being rewarded either, and their portfolios have a greater propensity for loss,” he said.

Rather than reach for returns, Sunstrom recommends working with an advisor to ensure you are properly diversified with investments that will help you reach goals.

6. Overexposure to One Stock or Asset Class

Some people have a significant portion of their portfolio invested in their former employer’s stock, Walters said. This creates risk, though, because a large amount of your retirement income could be riding on the fate of a single stock. If it tanks, so will your portfolio.

“Where possible, allocations to any single company should be minimized in favor of a well-diversified portfolio with exposure to many companies and asset classes,” Walters said.

7. Not Knowing How Much to Withdraw

More than three-quarters of Americans over the age of 40 don’t know how much of their retirement savings they can safely spend each year without outliving their assets, according to a new survey conducted by Ipsos Public Affairs for New York Life.

About one-third of those surveyed believe they can spend 10% a year. But if past investment returns are any guide, they would likely run out of money in 11 years or less at that rate.

The rule of thumb is that you can withdraw 4% a year from savings to minimize the chance you will outlive your money, said Steen. Consider that a guideline only, though. Steen said your withdrawal rate should be based on expenses and the performance of your investments each year.

8. Failing to Take Required Minimum Distributions

Some retirees make the opposite mistake when it comes to withdrawing money from their retirement accounts. Instead of withdrawing too much, they do not take out enough.

If you have a qualified retirement plan such as a 401k or traditional IRA, you typically have to start taking withdrawals by age 70½, said Jeff Jones, a Huntsville, Ala.-based certified financial planner with Longview Financial Advisors.

However, it can be confusing because you can delay your first required minimum distribution (RMD) until April 1 of the following year after turning 70½. If you fail to take an RMD, you will be hit with a 50% excise tax on the amount you were supposed to withdraw, Jones said.

Read more: 1 in 4 Americans Say Cost of Living Is Their No. 1 Financial Concern

9. Dismissing Annuities

Annuities get a bad rap because of the fees associated with them and the unscrupulous sales tactics used by some people who sell them. But a basic immediate annuity can be a good addition to a retirement portfolio because it can provide a guaranteed stream of income, Steen said.

To figure out how much to invest in an annuity — which you can do by taking a lump-sum from your retirement account — determine how much money you will need each year in retirement for fixed expenses, said Cathy McCabe, senior managing director at financial services provider TIAA. Then, calculate how much income you will get from Social Security and pensions.

If that income doesn’t cover your expenses, consider an annuity to bridge the gap, she said.

10. Not Updating Your Investment Strategy

Volatility in the stock market can affect your savings — as can your current expenses and future needs, said Jim Poolman, executive director of the Indexed Annuity Leadership Council. So the investing strategy you created before retirement might need adjusting once you enter retirement.

“Once you start your retirement, it’s beneficial to review your strategy,” Poolman said. “Revisit your retirement plan every few years to make sure your savings reflect your needs, and adjust for market conditions.”

11. Overspending in Early Years of Retirement

One of the biggest errors is overspending in the early years on large expenses that should have been addressed during working years, said Pedro Silva, a wealth manager with Provo Financial Services in Shrewsbury, Mass.

“Large home repairs such as driveways, additions, or new roofs and new vehicle purchases should be done before retirement,” he said. Making withdrawals from retirement savings to cover such expenses can make a permanent dent in your portfolio.

Read more: These Are The Biggest Retirement Planning Traps

12. Not Considering Home Equity as a Source of Income

You do not have to think of your home’s equity as a last resort when looking for a source of income in retirement. Either a reverse mortgage — which lets you tap your home’s equity — or a home equity line of credit can be a useful tool in your retirement toolbox, Steen said.

Tapping home equity can be a good way to cover expenses in a year when the value of your retirement portfolio drops because of a market downturn. You can draw on your home’s equity rather than cashing in losing stocks. That will give your portfolio time to recover, Steen said.

13. Neglecting to Plan for Long-Term Care

The cost of long-term care can be one of the single largest threats to your nest egg, said Rodger Friedman, a Washington, D.C.-based chartered retirement planning counselor and founding partner of Steward Partners Global Advisory. The average annual cost of care in an assisted living facility is $43,200, and a nursing home is almost twice as expensive, according to the Genworth 2015 Cost of Care Survey.

At least 70% of adults over 65 will need some form of long-term care, according to Genworth. But Medicare and most health insurance plans don’t cover long-term care. Unless you have long-term-care insurance, you will have to cover these costs on your own — or rely on Medicaid if you have extremely limited resources.

14. Not Having Estate Planning Documents

More than 60% of Americans do not have a will, according to a survey by low-cost legal service provider Rocket Lawyer. And a similarly large percentage do not have a living will or advance directive that spells out their health care wishes if they cannot make them on their own, according to a FindLaw.com survey.

“These are essential documents and need to be in place before something happens,” said George Urist, a certified financial planner with Urist Financial and Retirement Planning in East Syracuse, N.Y. “Without them, most states have their own ideas on where your funds will go.”

Creating an estate plan can help your loved ones overcome common legal issues that can emerge if you die, or are unable to make decisions for yourself.

15. Underestimating How Long You Will Live

The average life expectancy for a man is 76 years, and for a woman it is 81 years, Cathey said. But many people live well into their 90s or even past 100. “It would be much easier to plan if we all knew how long we were going to live, but it just doesn’t work that way,” she said.

To ensure your retirement savings will last, plan on living longer than you expect and withdraw from your savings at a rate that improves the odds you will have enough money for several decades. “You do not want to have to go back to work to support yourself in your 90s,” she said.

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