No matter how ready you feel for retirement, it takes time to adjust to life after work, especially when it comes to money.
There are some common spending mistakes that recently retired homeowners make that can lead to financial problems down the road.
However, with a little foresight and planning, experts agree that these mistakes can be mitigated or avoided altogether, paving the way for a stress-free retirement as a homeowner.
Financial advisors and real estate experts agree that there are five spending mistakes that newly retired homeowners often make in the first five years out of work:
Many early retirees get into trouble because they underestimate the true costs of maintaining a home.
“The fact that the mortgage has been paid off does not mean that the costs will stop,” says real estate agent and investor Ron Myers van Ron buys houses in Florida. “There are still repairs and regular maintenance needs. Things like roof leaks, plumbing issues or air conditioning issues can crop up without warning. And if you're living on a fixed income, those costs can hit much harder than expected.”
In fact, attorney and CPA Chad D. Cummings warns that “home maintenance costs will blind you and drain your budget.”
It is essential that you have a buffer in your budget for these expenses.
“Reserve two to three percent of your home's value annually for these inevitabilities,” Cummings advises.
Spending on home renovations without considering long-term financial sustainability is another common financial pitfall.
“Sometimes I see people making major upgrades or taking on additional costs, such as buying a second home or completely remodeling right after retirement,” says Myers. “The idea is to enjoy life, but if those decisions are not well thought out, they can deplete your resources faster than expected.”
Long-awaited recreational activities can place additional financial pressure.
“Retirement can feel like an endless vacation, tempting you to spend money on travel and hobbies you look forward to,” says Northwestern Mutual financial advisor Harrison Hunter. “But even small indulgences can add up.”
Cummings says he's seen retirees blow $80,000 on kitchen remodels or lavish cruises, then quietly panic for the next decade as their portfolios don't recover.
“That trip to Italy or that new conservatory feels justified, but it will forever reduce your future income,” he says. “That $80,000 could have made you $300 a month forever. Instead, it's gone in six months. Delayed gratification isn't optional in retirement; it's survival.”
Hunter recommends working with a financial advisor to create a balanced plan to enjoy these joys in this new phase of life without compromising long-term financial health.
Rising costs for health insurance, prescriptions and unexpected medical needs can leave new retirees feeling financially strapped.
“Healthcare costs aren't just rising, they're exploding,” Cummings says. “Most retirees budget for Medicare premiums but forget about out-of-pocket costs, dental, hearing and prescription gaps.”
Because healthcare can literally be a matter of life and death, it is crucial to be prepared for these high costs.
“If you don't have a plan to deal with annual medical inflation of six to 10 percent, you are gambling with your future health and your independence,” Cummings warns.
For those who qualify, Hunter recommends exploring a Health Savings Account (HSA) as a way to prepare for rising medical costs in the future.
Starting your retirement savings too quickly can shorten the life of your savings and affect your future spending options.
“Think of your retirement savings as a marathon, not a sprint,” Hunter says. “Withdrawing too much too quickly can quickly deplete your retirement portfolio, putting you in a tough spot later,” Hunter explains.
He says the safe withdrawal rate is about three to four percent per year, which is the recommended guideline for withdrawing money from your retirement accounts.
“Based on historical market performance, this is a safe rate to draw that can be maintained for about 30 years, enough to see most people through retirement,” Hunter says.
Many retirees underestimate how the costs of property taxes, homeowners insurance and utilities can skyrocket and stretch their budgets.
“Homeowners may be doing well when they first retire, but a few years later they are surprised by how much more they pay,” says Myers. “Especially here in Florida, property taxes can increase, and insurance rates often increase year after year, especially after storm seasons. These increases can eat into your monthly budget.”
HOA fees also tend to increase over time, “especially in 55 and older communities with lots of amenities,” says Cara Ameera Coldwell Banker broker who operates in both California and Florida.
And then there are the utilities to consider.
“Water, gas, electricity… none of it is stable.” says Cummings.
These sneaky expenses can creep up and put a dent in your retirement budget, so make sure you build in a buffer.
“If you're not tracking at least five to seven percent annual increases in these bills, you're lying to yourself,” Cummings says.
You can also take other proactive measures to help reduce certain costs.
Myers recommends that you contact your insurance agent to find the best coverage at the best price. “That kind of support is very valuable because it allows you to stay ahead of the curve and avoid overpaying,” he explains.
You can also reduce energy bills by setting smart thermostats, replacing your light bulbs with energy-efficient ones, and unplugging them when not in use.
When budgeting for early retirement, don't underestimate all the costs that could potentially increase.
“Budge for retirement as you do now, but add a cushion for leisure activities and unexpected expenses, including inflation,” says Hunter. “This approach gives you peace of mind and flexibility when you no longer generate a steady income.”
Don't forget to prioritize essential expenses.
“Start with housing, utilities, health care, food and transportation needs,” says Hunter. “Once these are covered, you can allocate money for discretionary expenses based on your remaining retirement income.”
Having a robust emergency fund should also be a crucial part of your financial plan.
“I recommend saving six to 12 months of liquid assets for unexpected expenses such as home repairs or medical expenses,” says Hunter. “This safety net can also provide some more certainty during market downturns.”
Hunter also recommends using tools such as retirement calculators to help you with your financial planning.
“They're a good starting point to help you figure out approximately how much you need to save,” he says. “They provide a baseline, but personalizing your retirement plan with an advisor can cover all of your unique goals and vision for the future.”
According to Cummings, retirees should also do periodic financial check-ins.
“If you don't do a six-month financial review, you're flying blind,” he warns. “Markets are changing. Medical needs are emerging. The number of spouses is declining. Without taking a good look at expenses, risks and exposure twice a year, retirees fall into disaster. I've seen it too many times. The check you skip this year is the one that could have saved you.”
Balancing the costs of homeownership and lifestyle choices can be a delicate balance.
“Ultimately, the goal is to own a home that supports your lifestyle, not one that worries you,” says Myers.
