Baby boomers are living longer than ever, which means making the switch from a regular paycheck to living on a fixed income in retirement may require a few adjustments.
In the 1930s, the average life expectancy for a man was 58, while a woman could expect to live to 62, based on data from the Social Security Administration. At that time, one hoped to live long enough to enjoy retirement for at least a few years.
But these days, there’s a 1-in-3 chance that women — and 1-in-5 chance that men — will live to 95 or beyond. Yet, the average Social Security retirement benefit is just $1,827 a month.
That means boomers — those born between 1946 and 1964 — will need to stretch their retirement dollars for two to three decades. And those who retired early need an even bigger nest egg. Plus, they might have additional expenses to factor into their retirement budget, like medical care or support for grandchildren.
If you want to make the numbers work, here are five things that boomers should (almost) never buy in their retirement years.
Retirees should focus on preserving their capital rather than risking it unnecessarily. Complex or high-risk investments may offer potentially high returns, but they can also result in significant losses. As you age, you have less time to wait out economic downturns, so make sure stocks aren’t over-represented in your portfolio.
Rebalancing your portfolio on a regular basis can ensure the right mix of assets (including stocks, bonds, CDs and cash) and appropriate risk levels for your changing needs in retirement. It’s crucial to research and understand any financial products before investing. Be cautious of financial products with high fees or unnecessary features that may not align with your retirement goals.
You may want to quote a qualified financial professional to ensure you’re not missing anything.
Boomers may have been reluctant to travel during the pandemic, but now they’re splurging on vacations, including big-ticket items like exotic cruises. And while travel is a great way to enjoy retirement, overly extravagant vacations can quickly deplete retirement savings.
Travel costs are on the rise, thanks to inflation and higher interest rates, and booming demand is driving up the price of flights and hotels. The cost of a trip can start adding up, once you factor in meals, excursions, tips and travel insurance.
Finding a balance between affordable and enjoyable travel is crucial. Consider traveling in the offseason when prices are lower and look for senior discounts offered by hotels and attractions.
Read more: Boomer’s remorse: Here are the top 5 ‘big money’ purchases you’ll (probably) regret in retirement and how to prepare for them
A timeshare is often viewed as an “‘investment,” but in most cases it depreciates once you take ownership. Nor can you generate any income from it.
With a timeshare, you pay for partial ownership of a vacation property, which is accessible to you during the same week or month each year. But timeshares often come with high maintenance fees and limited flexibility, making them a costly and inflexible investment for retirees. It’s not easy (or possible) to change your time slot, but you’re still required to pay ever-increasing annual maintenance fees.
The average price of a one-week timeshare interval was $21,455 in 2020, according to the most recent publicly available data from the American Resort Development Association (ARDA), with annual maintenance fees ranging from $640 to $1,290.
When you do the math, it could be much cheaper to stay in a hotel or rent a vacation home.
Many boomers consider buying a second home in their retirement years — perhaps a summer home in cottage country or a winter getaway in a retirement haven like Florida or Arizona. Some view it as an investment property, or as part of their legacy to leave to their children.
But owning multiple properties can be financially burdensome. If you’re renting it out as a source of income, you’ll still need to pay the mortgage, insurance, taxes and maintenance, even when it’s sitting vacant — and those costs will be even higher if the property is located in another country.
Plus, managing a property takes a lot of work, and if you hire a management company to handle that for you, you’ll have to share the profits. So it’s important to carefully consider the costs before investing in a vacation home.
Large, impulsive purchases
Nearly half of boomers (48%) said they’d be comfortable in retirement if they “watch their spending,” according to a 2019 Natixis survey. That comes down to budgeting, which is important when living on a fixed income.
But it’s one thing to have a budget; it’s another to stick to that budget. Americans spend more than $300 each month on impulse purchases, adding up to more than $3,600 per year. When those impulse purchases are big-ticket items, like a luxury car or yacht, that can put a sizable dent in your retirement savings.
Ultimately, impulsive spending can lead to regret and financial strain. It’s important to take time to evaluate whether a big purchase is a genuine necessity or just a fleeting desire.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.