5 Potentially Devastating Mistakes Pre-Retirees and Retirees Make
Failing to save enough is an obvious, and all-too-common, disaster in the making, but here are five much trickier danger zones to steer clear of.
The road to and through retirement is filled with potholes. Some are small, and you may be able to drive right over them, but some can be devastatingly deep. They could send you on a financial tailspin with little chance of recovery.
Here are five mistakes that could hinder your retirement plans:
1. Focusing on the wrong thing.
Retirees spend a lot of time worrying about how much things will cost as they age — health care, long-term care, etc. My advice to retirees is to switch their mental energy to the other side of the ledger — their incomes. If you have enough income, and you’re managing it well, you’ll be prepared to handle those expenses as they come at you.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
2. Misunderstanding risk.
No one knows for sure which way the market will go. We use different measures to aim to figure it out, but at the end of the day, it’s impossible to predict. So, it’s up to retirees to control the amount of risk they are experiencing. For many people, it’s tough to get past the idea that risk equals reward. In the second half of one’s financial life, however, you cannot afford the same kind of risk you tolerated when you were saving money for retirement.
3. Not knowing what you pay.
Many people go forward with their financial adviser’s investment strategies without understanding all the possible costs in both hidden and disclosed fees. When you add up the cost of paying your adviser, along with the trading and product costs for your investments, the fees could be upward of 3%. That means you have to get a 3% return just to break even. Don’t just nod and agree with the plan the adviser sets before you — ask questions and check costs.
4. Leaving your IRA or equivalent to your surviving spouse without considering alternatives.
Most people leave their IRA to their spouse without even thinking about how the surviving spouse’s tax status will change — from how the surviving spouse may file (single vs. married filing jointly) to how much taxable income they now have. We encourage married couples to work with their tax preparer or CPA to draw up a mock return that would reflect any possible changes to tax liability if a spouse would pass away. It’s easier to plan for this significant life event than to have to react at that moment. Other choices for bequeathing an IRA would include younger individuals (although they would be required to take required minimum distributions, the percentages to withdraw would be quite small) and a see-through trust.
5. Accepting low returns.
The stock market isn't the only place to get a decent return these days. There are many different investment vehicles designed to create lasting income in retirement, which should be the No. 1 focus of retirees. One of those vehicles is a fixed indexed annuity. By taking a portion of their money and putting it on deposit with an insurance company, retirees are able to take advantage of the upside of the market without taking on any of the downside risk. There are also options for creating assistance with potential long-term care costs — something many retirees fail to protect themselves against due to high premiums.
How can you avoid these potential problems in your retirement journey? I always encourage a person to find an adviser who specializes in the second half of an individual’s financial life and to be sure and ask how the adviser is managing their funds. Receiving good financial advice is one of the most important things you can do for your future self.
No part of this communication should be construed as an offer to buy or sell any security or provide investment advice or recommendation. Securities offered through GF Investment Services, LLC, member FINRA/SIPC, 501 North Cattlemen Road, Suite 106, Sarasota, FL 34232. (941) 441-1902. Investment advisory services offered through Global Financial Private Capital, LLC, an SEC Registered Investment Advisor. SEC registration does not imply any level of skill or training.
Kim Franke-Folstad contributed to this article.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Roger Ford has 30 years of experience in retirement income planning. After receiving his formal education at the University of Cincinnati, Ford started his own business, Conservative Financial Solutions. He is a Registered Financial Consultant (RFC) and obtained his certification through the International Association of Registered Financial Consultants. He actively holds Series 6, 63 and 65 licenses and is a licensed agent in life, accident and health and property and casualty insurance.
-
Earn Delta SkyMiles Worth Up to $1,800 with an AMEX Business Card
Delta SkyMiles and American Express offer 150,000 on business credit card for new cardholders.
By Ellen Kennedy Published
-
How to Help Your Kids Without Ruining Your Retirement
Here are some general considerations to ensure the gift of assets to your kids will not negatively affect your financial future.
By Mario Hernandez Published
-
How Annuities Can Help You Retire Early and Delay Social Security
Waiting until 70 to claim Social Security benefits can pay off, so how do you bridge the gap between giving up your paycheck and filing for benefits?
By Ken Nuss Published
-
How to Get Your Kids to Step Off the Gravy Train
A surprising number of young adults live with their parents. Setting some financial ground rules could get the kids out on their own faster.
By Neale Godfrey, Financial Literacy Expert Published
-
Spring Is a Good Time to Clean Up Your Finances, Too
While you’re decluttering your home for spring, consider also taking a crack at cleaning up your finances and old paperwork.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Is Your Retirement Solution Hiding in Plain Sight?
Here’s how to use your home equity in combination with an annuity contract to produce late-in-life income.
By Jerry Golden, Investment Adviser Representative Published
-
How to Choose Your Trustee or Executor of Your Will
Above all, you should choose someone you trust, keeping in mind that acting as a trustee or executor can be a complex, thankless and sometimes long-term job.
By John M. Goralka Published
-
Three Steps for Women to Take Control of Their Finances
These strategies are especially for women who are new to managing their money because of divorce or the death of a spouse.
By Emily Glassman Published
-
How AI Can Help Take the Emotion Out of Investor Decisions
AI-driven recommendations can complement human judgment, leading to more rational choices that aren’t as influenced by biases and blind spots.
By Francis Geeseok Oh Published
-
Can You 1031 Exchange into a REIT?
No, you can't, but two other REIT-like alternatives let you defer capital gains taxes while giving you exposure to institutional-quality real estate assets.
By Daniel Goodwin Published