15 Mistakes Making American Retirees Poor
After decades of working and saving, it’s finally time to enjoy retirement. All of your hard work has led up to this, so you understandably want to make sure your money lasts.
Developing a retirement plan and budget before you retire is wise to help you maintain a positive financial situation once you leave the office for good. Additionally, speaking with a certified financial advisor can help prepare you for this new chapter of your life as you go over the ins and outs of your retirement plan.
Mindfully American scoured the web for the most common, innocent mistakes people make that can leave them financially strapped during retirement. We pulled information from authoritative retirement resources and news outlets. The information here is intended to shed light on financial mistakes retirees and retirees-to-be often make, but it’s not a replacement for professional advice from a certified financial planner, as every individual’s situation is unique.
1: Not Purchasing Supplemental Insurance
With retirement comes the loss of employment, and with the loss of employment can often come the loss of healthcare. This is where Medicare comes in.
Different plans cover different things, but if you haven’t been on Medicare before, there are a few things to know. Dental, vision, and hearing may not be covered, as well as certain prescription drugs. Occasionally, a healthcare provider may charge more than what Medicare approves, leaving you to cover the rest.
It’s important to take a look at your plan specifically to figure out what sort of supplemental insurance you may need.
2: Not Adjusting Spending Habits
As a retiree, you have a finite amount of resources, so it’s important to have an idea about how to spend them. After spending most of your adult life working, you may be used to a certain lifestyle. It’s natural to want to preserve the comforts you’ve grown to expect, but in most cases, you’ll need to make adjustments to your lifestyle to preserve your funds.
Of course, it’s important to enjoy your retirement, but you need to be diligent about your budgeting and planning more so than you might have been in other stages of your life. So much of retirement is sticking to a budget that will keep you from stepping back into the office.
3: Falling for Scams
According to the National Institute of Health, older generations are most likely to fall for scams. No matter how adamant you feel about this not happening to you, it’s important to stay vigilant. Protect yourself from fraud by maintaining privacy online and being careful about the information you give out.
Scammers will make all sorts of claims. You name it, they will try to use it to take your money.
With the rise of artificial intelligence (AI), it’s getting more difficult to tell what is a scam and what is real, so do your due diligence when receiving calls or messages. When in doubt, consult with the official number of the agency that they claim to be calling from.
4: Not Investing More Conservatively
Many financial experts agree that it’s important to rebalance your portfolio periodically to help protect your assets. Furthermore, doling out a large percentage of your investment cash to risky ventures may set you back once you retire.
According to Investopedia, it’s reasonable for an individual in their 20s to have 80% to 90% of their investments in stocks, which are historically a riskier investment than bonds. Meanwhile, they recommend the remaining 10% to 20% go to bonds.
Fast forward to those in their 50s and 60s, and Investopedia says a recommended asset allocation is 50% to 60% stocks and 40% to 50% bonds. Once a person reaches their 70s and 80s, they recommend 50% to 70% of their retirement funds be in bonds.
5: Investing Too Conservatively
Yes, this is a juxtaposition from the last point, but there is also such a thing as investing too conservatively. Your investments will be your lifeline during retirement. You need to ensure that you’ve invested enough to see a return.
A good way to be smart about this is to diversify your investments. This gives you a larger probability of seeing a return, even if certain stocks dip. The key is to invest early.
If you start investing $1,000 per month into a retirement account, you could have approximately $2,024,222 saved by the time you reach 67 years old. A thirty-year old making a $1,000 per month investment will have approximately $1,150,036 saved.
In contrast, waiting until you’re 50 years old to invest $1,000 per month will only result in around $283,890 in savings, and starting at 60 years old will land you with around $81,623 at 67.
6: Purchasing Too Much Company Stock
You may love and believe in the company you work for. That’s a great thing, but just because you have faith in your company doesn’t mean you should put all your eggs into one basket.
Your salary is dependent on the success of your company, as is the value of the stocks that you invest in the company. Economists say that no more than 10% of your investments should be in your own company’s stock.
7: Not Taking Company’s Match
Here’s where you should rely more on your employer, as so many workers fail to take full advantage of their company’s 401(k) match policy. If you’re not contributing enough to receive a match, you are essentially throwing money away.
You don’t necessarily need to contribute the maximum percentage of your income that the company will match, but at least take advantage of some of those funds. Your future retired self will thank you.
8: Over-Reliance on Public Benefits
Even if you’re lucky enough to receive a pension from your employer, it’s absolutely crucial to save. Many retirees over-rely on this and public benefits such as Social Security and Medicare. While it’s great to take advantage of these benefits, those alone are often not enough to maintain a stable financial position throughout retirement.
There’s an array of other public benefits that are great to take advantage of, such as legal assistance, utility assistance, food assistance, and more for seniors in need. It’s also common for public transportation to give discounts to seniors. Just make sure that you are not solely depending on these types of assistance.
Prepare yourself to be self-reliant by investing your own money towards your retirement.
9: Failing To Understand Taxes
Another innocent mistake frequently made by retirees involves taxes. There are variables such as social security, pensions, and more that can impact how much you owe come tax season. Here are a few fast facts to know:
If your income exceeds a certain amount, a portion of your social security benefits are taxable. Pensions are taxable as well, and the amount you’ll pay is dependent on your plan. Most IRAs and 401(k)s are also taxable, and once you reach a certain age (which varies depending on your plan), you’re required to dip into these accounts.
Older generations tend to incur more healthcare expenses than the rest of the population. Some of these costs might be tax-deductible.
10: Not Consulting With a Financial Planner
As mentioned at the start of this article, consulting with a certified financial planner or advisor can be beneficial to your retirement planning. One of the biggest mistakes retirees make is skipping this crucial step.
A financial planner will create a retirement plan specific to your situation. There’s no one-size-fits-all when it comes to this stage of life. For this reason, it’s helpful to speak with an expert who understands how to best prepare for this exciting new era.
11: Not Factoring in Inflation
So many retirees fail to consider inflation when saving for retirement. Historically, the U.S. dollar loses value over time because of inflation, and The Wall Street Journal reports that more and more retirees are at risk of running out of money as a result.
As frustrating as it is, inflation is something that’s been a part of our economy long before the COVID-19 pandemic. So, it’s important to factor inflation into your retirement plan. Likely, your dollar won’t stretch as far ten years down the line. Because of this, you may need to save more money than you think.
12: Carrying Too Much Debt
According to Ramsey Solutions, eight out of ten Americans ages 18+ years old have at least one credit card. Of them, a massive 48% carry a balance on their credit card. As a retiree, it can be difficult to maintain loan payments. You are working with a fixed income, which can present a challenge when trying to pay off debt.
There are added complications when it comes to having debt as a retiree. If an emergency were to arise leaving you with less funds than expected, you could default on your loan without the chance of working overtime at your job or with recent job history under your belt to more easily get a second job.
13: Failing To Save for Emergencies
Regardless of your financial stage in life, having an emergency fund is imperative. Most of us have experienced unexpected expenses in life, and you want to be adequately prepared to handle them. Without an emergency fund, retirees may find themselves relying on family members or taking on debt to deal with life’s misfortunes.
The Motley Fool recommends everyone has a minimum of three to six months’ worth of expenses saved in an emergency fund. However, they recommend retirees have more than this so they don’t have to sell investments for a loss if an emergency happens when the market is down.
Not only will saving for the unexpected give you a sense of financial independence and prevent you from incurring high-interest debt, but it will give you the peace of mind that you deserve to have during your golden years.
14: Dipping Into Social Security Too Early
Social Security reaches its maximum benefit level when a person starts receiving their payments at 70 years old. However, you can take advantage of it as early as 62.
Taking Social Security at 62 can have significant drawbacks, though. For example, you’ll receive 30% less money every month for the rest of your life if you start receiving Social Security at 62 instead of 67. Furthermore, you won’t get to take advantage of the compounding effect of cost-of-living adjustments.
Nevertheless, there are times when taking social security early makes sense. Speak with a CFP if you’re unsure about the best route for your situation.
15: Underestimating Your Lifespan
Despite a loss in life expectancy of 2.4 years between 2019 and 2021 due to the pandemic, Americans are living much longer now than they did in the past. But with a longer life comes the expenses needed to live that life. As off-putting as it may sound, lots of retirees underestimate their lifespan and fail to take into account just how much longevity might be in store for them.
Older generations should expect to live into their late seventies and beyond, according to the Centers for Disease Control and Prevention (CDC), giving them more time to enjoy retirement, spend time with their families, and relax.
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