You’ve spent years building your nest egg, and now that you’re retired, it’s tempting to finally enjoy it. But some big-ticket purchases, while appealing, could put your long-term financial stability at risk.
“In 20 years of helping retirees transition to a retirement lifestyle, I have often seen people make uninformed decisions that they regret later,” Laura Redfern, a CFP and CeFT at Shadowridge Asset Management, wrote in an email.
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Below are some common retirement splurges that might feel rewarding but could cost you more than you think.
Timeshares
Timeshares allow you to enjoy your vacation space without buying and maintaining a second home, but they may not be the best purchase in retirement.
“While the idea of a guaranteed getaway sounds appealing, timeshares often come with hidden fees, inflexible booking systems and long-term contracts that are difficult to exit,” said Jake Falcon, CRPC, founder and CEO of Falcon Wealth Advisors.
According to CNBC, one study found that as many as 85% of buyers regret their purchase. Redfern also pointed out that timeshares are practically illiquid and nearly impossible to resell.
“In retirement, flexibility is key,” Falcon said. “I advise clients to rent when they travel — this keeps options open and avoids locking up capital in a depreciating asset.”
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Oversized Homes or Second Properties
“Many retirees dream of a vacation home, but the reality is that maintenance, taxes and insurance can quickly eat into fixed income,” Falcon explained.
Instead, he recommended downsizing or renting seasonally rather than purchasing a second property. “As I discuss in my book ‘Retiring Right — Smart Steps for Exiting Corporate America,’ liquidity and simplicity are two of the most valuable assets in retirement,” Falcon explained.
Luxury Vehicles
A luxury vehicle is also a purchase retirees may want to rethink. According to Redfern, a new car typically loses 10% to 20% of its value the second you drive it off the lot.
“For retirees on a fixed income, this is a sizable loss. Over time, depreciation continues, with some luxury cars losing 60% or more of their value within five years. Would you buy a mutual fund or a stock that was likely to lose 60% in five years? I think not!” she explained.
Extravagant Gifts
It’s natural to want to help children or grandchildren, especially with big purchases like a house or a new car. But giving large gifts early in retirement can drain your savings faster than expected.
“When you feel the desire to give a gift, pause and consider this: What are you trying to communicate with this gift? Is there another, less expensive way to express that? Is there a way you can help them learn about how money works (like helping with a down payment, but having them be responsible for the loan), rather than giving them an outright gift?” Redfern explained.
High-Risk Investments
Chasing returns through high-risk investments may be tempting, Falcon noted, especially with more time to watch the markets. But this isn’t a smart move.
“Retirees should prioritize stability and income. As I often say in my podcast ‘Upticks,’ ‘Retirement is not the time to swing for the fences — it’s about protecting the base you’ve built.’ We compare our investment strategy to hitting singles and doubles versus swinging for the fences and striking out,” Falcon said.
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This article originally appeared on GOBankingRates.com: Timeshares and 4 Other Things Boomers May Be Tempted To Buy in Retirement but Shouldn’t
