7 ‘bad assets’ that could cause you to retire poor in America — how many do you own?

Workers, on the other hand, have been preparing for retirement for decades. (Talk about a marathon.) Hopefully, by the time you decide to retire, you’re sitting on a hefty, well-diversified portfolio of assets.

But if you’re not careful, you could be holding onto a few items that look like “assets” but are actually hidden liabilities. Here are seven of the biggest money drains older Americans tend to trap themselves into before retirement.

1. Brand new cars

If you’re relatively older and financially secure, splurging on your “dream car” could be the ultimate temptation. Why not buy the toys you’ve always wanted? You might even reassure yourself that if you ever need the money (or space), you can always resell them to someone else who’s just as passionate about motors as you.

Well, the typical new car loses roughly 55% of its value within the first five years, according to Kelley Blue Book. In just the first two years alone, you can expect to see about one-third of your car’s value simply disappear.

That doesn’t mean your dream car should be off the table though. The depreciation rate slows down after those initial years, which means buying a modestly used car at an affordable price could be a good compromise.

Personal finance guru Dave Ramsey would urge you to avoid taking out a loan — especially as many Americans are now stuck in a $1,000-month payment nightmare. On a fixed income, that could leave you in a precarious financial position.

2. Timeshares

Spending your retirement on the beach in Cabo Verde has its appeal. But there’s a difference between buying a vacation home somewhere exotic and buying a timeshare.

Unlike property ownership, timeshare ownership involves steep initial costs, recurring maintenance fees, low resale potential and rigid usage schedules.

On top of that, the secondary market is notoriously poor, and many owners struggle to exit their agreements. Most timeshares sell for between 0% and 10% of their original purchase price when owners try to get out, Brian Rogers, owner of the resale marketplace Timeshare Users Group told CNBC in 2024 — and most of that activity lands at the low end.

Sales tactics can be aggressive, and the contracts themselves are often complex and difficult to navigate. It’s also not an asset you can easily pass along to your children — if they even want it.

You may consider creating an annual budget for vacation rentals in your retirement plan instead of locking yourself into these bad deals.

3. Luxury collectibles

Yes, there is an active market for luxury collectibles such as vintage cars, designer handbags and luxury watches. But a Rolex probably doesn’t deserve a spot on your retirement portfolio. (Unless you’re Kevin O’Leary of course.)

Luxury consumers are a fickle bunch and what’s considered valuable today may not be as valuable by the time you retire. And the market is notoriously one of the least accessible out there for collectors. You generally will need to have deep industry relationships, and then spend months or even years waiting just for the opportunity to drop a small fortune.

For generations, Americans have invested a great deal of money in art and building personal collections. A Deloitte report shows that about $1 trillion worth of art is set to exchange hands in the next decade. The problem? The younger generation don’t want these pieces. And selling them off takes time and money many of these heirs might not have.

With that in mind, avoid the glamorous “assets” and focus on safe but boring investments like corporate bonds or dividend stocks.

4. McMansion or home upgrades

While many Americans historically downsized once the kids grew up and left the nest, baby boomers are increasingly bucking that trend. Not only are many opting to stay in their large family homes, some are even buying bigger homes in retirement.

However, it’s easy to go overboard here. Buying a house that’s beyond your budget or too big for your needs can make it tougher to pay off the mortgage or maintain the property when you’re on a fixed income. It’s also a good idea to avoid excessive and frequent renovations to try and add value to the property.

Instead, focus on minimizing costs and debt. The American homeowners with a mortgage have on average $310,000 in equity, according to Cotality. Consider downsizing to tap into some of that built-up equity to make your retirement more flexible and comfortable.

5. Lottery tickets or speculative investments

Buying lottery tickets or pouring money into unproven and speculative investments is rarely a good idea, regardless of your age. But the risks are magnified when you’re older and approaching the end of your career.

Instead of indulging in wishful thinking that a meme-worthy cryptocurrency or random penny stock is going to make you rich overnight, consider the safer path to retirement. Making up for losses in retirement has always been stressful, but data shows retirees now have “fewer options and less ability” to recover from setbacks. It’s not the time to start gambling with your nest egg.