5 Major Money Mistakes To Avoid When You’re Nearing Retirement

5 Major Money Mistakes To Avoid When You’re Nearing Retirement

By Jennifer Taylor GoBankingRates

You’ve been working hard your entire adult life and you’re finally nearing retirement. The prospect of having more time to relax and enjoy yourself is exciting, but you’ll need money to do that.

As you wrap up your peak earning years and prepare to step away from the workforce, it’s important to make smart money moves that will protect your nest egg. All it takes is one poor financial choice to throw a wrench in your plans — and financial stability — so take the time to make informed decisions.

When faced with a large amount of cash, it can be tempting to share it with loved ones — i.e., your children — or indulge yourself with luxury items. However, this money needs to last your entire retirement, which could span decades. Here’s a look at common financial blunders you don’t want to make as you get older if you want to avoid a major financial setback.

Building Wealth

Collecting Social Security Benefits Too Soon

Many people make the mistake of taking Social Security income as soon as they can because it’s available. Others start early because they’re afraid the system will run out of money. Neither approach is the best way to maximize benefits.

“You receive more each month if you wait until your full retirement age, and you can even get increases after that — amounting to roughly 8% per year until you’re 70,” said Justin Pritchard, CFP, founder of Approch Financial, Inc. in Montrose, Colorado.

Having patience can literally pay off.

“Instead of claiming as soon as possible, run some numbers to determine how much you’ll earn if you wait,” he said. “Remember that a surviving spouse who takes over your benefit will be affected by your decision, so choose carefully.”

Cashing Out a Retirement Account

When you retire, you might have the option to keep your retirement savings with your employer or move the money into a retirement account — i.e., an IRA — in your name.

“You don’t need to cash out the entire account and put that money in the bank,” Prichard said. “If you do so, 100% of your nest egg may become taxable income, resulting in high tax rates and possibly even underpayment penalties.”

Avoid decreasing the value of your retirement account by making informed decisions.

“Instead of cashing out,

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