By the time retirement comes, most people have gained a certain amount of insight and wisdom. However, this doesn’t always translate into financial savvy. The article “5 Common Money Mistakes Retirees Make” from Next Avenue aims to help retirees steer clear of mistakes that are easy to make—and just as easy to avoid.
Thinking You’re Smarter than the Market. Even professionals who buy and sell individual stocks, or the money managers who run billion-dollar funds rarely outperform the market. Don’t forget the millions of artificial intelligence programs now operating in markets world-wide. Moving in and out of individual stocks, known as an “active strategy,” is a recipe for financial risk. Here’s why:
- Betting on an individual stock is not betting on the company’s performance, as much as it is betting it will go up more than the professionals believe it will, and betting that you know more than the supercomputers that run today’s markets.
- Higher volatility strategies may look better than the market some years. However, even if you’ve done well for ten years, you may be up against a big upset. Do you have time to recover those losses? Not if you’re over 65.
Sticking with an All Cash Portfolio. The opposite of the person who trades stocks, is the one who keeps everything in cash, money-market mutual funds or CDs. However, health care costs are rising, at some point inflation will start to ramp up and money that doesn’t grow can’t keep up.
Putting a Little Bit Here, a Little Bit There. Diversification is the name of the same, but that doesn’t mean having multiple accounts at numerous financial institutions. Many people think they are playing it safe by keeping some money in a high-risk mutual fund, while other money is in a risk-avoiding mutual fund. The strength of diversification is in the underlying assets—stocks, bonds, real estate, etc. Having money in multiple mutual funds in different financial services accounts may mean all of your money is invested in exactly the same way. Ask your financial advisor for a look-through analysis to review underlying assets to be sure that your investments really are diversified.
Not Touching Savings. Not Even a Little Bit. Is your plan to leave money for children, or charity? Don’t be afraid to dip into your savings accounts during retirement. Many people live too frugally, afraid that they will outlive their money. However, if you have a good handle on your spending and investments, you should enjoy the money you worked hard to accumulate. There are numerous ways to make donations or bequests that can protect your money, while enjoying your retirement. Talk with an estate planning attorney about the use of charitable donations as a means of reducing taxes, or how trusts can help.
Letting Real Estate pin You in a Financial Corner. The family home is many people’s biggest asset. Selling it to finance your retirement may create many unknowns. Will the sale generate enough profit to cover your cost of living for the next few decades? You’ll need to crunch the numbers to figure out what the best strategy will be. If you can sell your home, buy something smaller and use the proceeds to enjoy your retirement, you might actually end up with more money, not less.
How do you pull your retirement finances together? Consider the risks, like long-term care costs, medical expenses, or outliving your savings. Figure out a strategy to address them. Use a simple, broad-based investment approach, and finally, figure out how much money you need to live on. Then, use that money in the best way possible, so that you are managing your costs of living and enjoying your life.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: Next Avenue (November 14, 2019) “5 Common Money Mistakes Retirees Make”