15 Common Money Mistakes Older Americans Make
As many Americans get older, they start to think about how they can save for their later years. What should you do to make sure you have enough money for retirement?
The better question might be, what shouldn’t you do? Unfortunately, older Americans often make some mistakes when it comes to long-term financial planning, especially related to budgeting and savings.
Read through this list to learn about 15 common mistakes older Americans can make with their money. The advice in this article comes from government sources, research-backed studies, and financial companies.
1: Taking Benefits Early
You can begin taking Social Security benefits at age 62. Think carefully before collecting your benefits early, however, as doing so can come with disadvantages.
If you get Social Security benefits before you reach full retirement age, you’ll receive a reduced amount each month. Conversely, you’re eligible for increased benefits if you delay your retirement.
2: Putting Off Retirement Savings
When you’re in your 30s, 40s, or even 50s, retirement can seem like a distant goal. But it’s never too early to start saving for retirement to ensure you have enough money in your golden years.
In a recent study, 70% of Americans say they wish they had saved or invested for retirement earlier. Those participants said if they could give their former selves advice, it would be to start planning earlier and change their savings habits.
3: Not Increasing 401(k) Contributions
If your employer offers a 401(k), make sure you’re contributing as much as possible. Even small yearly increases can add up over time, boosting your retirement savings.
Fidelity Investments, a financial firm, recommends increasing your 401(k) contributions by 1% to see significant returns over time. If that’s not possible, aim to make a smaller increase in contributions each year or anytime you get a pay raise.
4: Not Making a Budget
When you know how much money you need to live comfortably, you can create reasonable savings goals for retirement. Too many older Americans fail to make a budget, causing them to underestimate how much money they’ll need in their later years.
Before you retire, take some time to review your spending habits. Account for your monthly bills, including mortgage payments, utilities, and groceries. Once you have a budget, look at your retirement accounts to see if you need to be saving more money.
5: Maintaining Former Lifestyles
A budget can also be eye-opening because it shows you where you may need to adjust your lifestyle to stay within your means. Some Americans fail to make these adjustments as they get older, leading them to overspend.
When you retire and leave the workforce, you probably won’t have as much money to spend each month. That means you may need to lower your budget in some areas, such as eating out or entertainment.
6: Making Aggressive Investments
When you’re younger, you can afford to make aggressive investments since the market generally increases over time despite ups and downs. After retirement, however, many Americans continue to leave their money in aggressive investments without thinking about their short-term needs.
In retirement, it’s a good idea to move some money into more conservative investments. That way, you’re protected from steep losses in a volatile market. You can also access your money if you need cash quickly.
7: Depleting Your Savings
Once they retire, some older Americans make the mistake of spending too much, too soon. They struggle to make the transition from earning a salary to living on a fixed income.
Keep your savings in mind as you enter the world of retirement. Resist the urge to spend large amounts of money on big-ticket items right away, like extravagant trips or expensive home renovations.
8: Overpaying in Taxes
Taxes can become more complicated in retirement. Some Americans don’t understand their tax liability and end up overpaying in taxes once they leave the workforce.
Make sure you understand the tax obligations for different retirement accounts so you can plan accordingly. Additionally, consider diversifying your accounts to avoid paying too much in taxes.
9: Not Downsizing
As they get older, many Americans get closer to paying off their mortgages. Even after they become empty nesters, they remain in their homes rather than downsizing to smaller residences.
If you’re living in a home with more space than you need, consider whether you’re overpaying for various costs, such as utilities, taxes, and maintenance. Selling your home and downsizing may allow you to save money you can put toward your savings or other expenses.
10: Overspending on Children
Many older Americans want to spend more time with their children or grandchildren. Often, they spoil their family members at the expense of their own savings.
It may be hard to resist spending money on your family, especially if they ask for help with major expenses, such as education or a home. Review your savings carefully and make sure you have enough money for your own expenses before gifting money to a child or grandchild.
11: Taking Bad Advice
Just because someone gives you financial advice doesn’t mean you have to take it. Too many older people accept advice from their friends or family without doing their own research.
If someone you trust gives you financial advice, do your due diligence to make sure it’s good advice for your specific situation and lifestyle. It’s always a good idea to consult with an expert, such as a financial adviser or investment planner, before making major money decisions.
12: Falling Victim to Scams
Unfortunately, older Americans are often the target of financial scams. According to the FBI, the average victim of elder fraud loses $33,915 in a year.
Know how to protect yourself from becoming one of these victims. Review your bank statements carefully and check your credit report regularly. When in doubt, speak with an adviser or someone you trust about potential concerns.
13: Forgetting About the Unexpected
You never know what’s going to happen as you get older. Some Americans budget for their later years but forget to plan for the unexpected.
As you age, you may have to consider expenses that weren’t top of mind during your younger years, such as health-related challenges. Other unplanned expenses, like major car repairs or a leaky roof, can also be more problematic when you’re living on a fixed income. While budgeting for retirement, don’t forget to leave some room for these surprise costs.
14: Neglecting Long-Term Planning
The cost of getting older continues to rise, so don’t make the mistake of neglecting to plan for your long-term care. Consider purchasing long-term care insurance to cover the significant costs of assisted living or nursing care.
According to the Cost of Care study, the median monthly cost of an assisted living facility in the United States is $5,350. For a semi-private room in a nursing home, the monthly cost averages $8,669.
15: No Estate Planning
Considering what happens to your assets after you’re gone may feel overwhelming. But failing to make a plan can make it harder for your loved ones after your death.
U.S. Bank recommends making an estate plan with some basic documents, including a financial and healthcare power of attorney, a will, and a trust. Speak with a financial adviser about an estate plan to maintain control over the future of your assets.
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