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To protect yourself, consider investing in assets that keep up with inflation, like stocks or inflation-protected bonds. You’ll also want to factor in higher costs for everyday expenses like food, gas, and utilities when estimating how much you’ll need.
4. Failing to Diversify Investments
Relying too heavily on one type of investment can be risky. In your 50s, your focus should shift toward protecting what you’ve built, not just chasing high returns. Too many people make the mistake of keeping all their money in stocks or, conversely, pulling everything into ultra-safe options like bonds or savings accounts.
A balanced portfolio is key. Diversify your investments across stocks, bonds, and perhaps real estate to reduce risk while still allowing for growth. That way, you can weather market fluctuations without putting your retirement at risk.
5. Not Considering Taxes in Retirement
Many people don’t realize that their tax situation might change in retirement. Your Social Security benefits, for example, may be taxable if you have other sources of income. And, if you’re withdrawing from tax-deferred accounts like a traditional IRA, those withdrawals will be subject to income tax.
Work with a financial planner to estimate your tax liability in retirement. By planning ahead, you can make more strategic decisions about when to withdraw from different accounts to minimize your tax burden.
6. Overestimating Social Security
Social Security is designed to supplement your income in retirement, not replace it entirely. However, many people overestimate how much they’ll receive or assume it will cover most of their expenses. In reality, Social Security typically replaces only about 40% of pre-retirement income.
