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.
Watch Out: 17 Biggest Budgeting Mistakes You're Making
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.
Last updated: Feb. 15, 2021
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 Approach 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."
Check Out: What Social Security Will Look Like in 2035
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, consider moving those funds into an IRA," he said. "From there, you can take out exactly what you need in chunks. You might set up a monthly income stream, or take withdrawals as major expenses come up."
Ignoring Healthcare Expenses
If you've enjoyed employer-sponsored healthcare during your time in the workforce, there's a chance you haven't fully grasped the true cost of health insurance premiums.
"You might face sticker shock, especially if you retire before age 65 and need to buy a policy from a private insurer," Prichard said. "Research healthcare expenses long before you leave your job. You may have options, such as continuing benefits under COBRA or a state program for 18 months."
Covering all the bases will ensure you're prepared for the healthcare costs you'll face upon retirement.
"Even when it's time for Medicare, you need to know roughly what to expect," he said.
Compare: How Much You Should Have in Your Retirement Fund at Every Age
Giving Your Children Their Inheritance Early
If your adult children need extra cash, it can be tempting to let them have at least part of their inheritance now, while you're still alive. You could rationalize this as a good idea because they'll eventually get the money anyway but think twice about that.
In many cases, children who ask for an advance on their inheritance aren't the best at managing their finances. Therefore, they might come to you in the future needing more cash, which could ultimately exceed the amount of cash you were planning to leave them.
"They should receive what is left over after you have used your own retirement savings to enjoy your golden years," said Mark D. Kinsella, CFP, founder of Family Financial Planning Services, LLC. in Wheaton, Illinois. "Keep the money and use it for your needs - fun, travel, emergency fund, insurance, investments, etc."
Buying an Expensive New Car
It's important to enjoy your golden years, but you don't need a luxury ride to do it. Kinsella said he has seen many people kick off retirement by purchasing a fancy new car, thinking it will be the last vehicle they purchase.
"You will need a number of cars in retirement," he said. "Put the money into moderate growth investments, so you will have it when you need to purchase another car."
These Are the Best Banks of 2021 - Did Yours Make the Cut?
How To Rebound From a Bad Financial Year: 2020 Edition
Top 100 Banks Leading the U.S. in 2021
10 Simple Habits of Money-Smart Individuals
This article originally appeared on GOBankingRates.com: 5 Major Money Mistakes To Avoid Once You Turn 60