The 10 Worst Financial Decisions You Can Make In Retirement (Part 2)

Failing to Understand Distribution - Take the time to understand when and how to withdraw funds from your retirement accounts. Withdrawing early from a 401(k) or improperly rolling into a new plan may incur tax penalties. Same for IRAs.  Don’t let a simple mistake or misreading impact the next 20 years of your life. The objective of your distribution strategy is to convert funds from pre-retirement accounts into post-retirement accounts that will provide your retirement income. Sitting down with a financial planner to prepare your distribution strategy is highly recommended.

Underestimating Future Healthcare Spending - The first unknown to consider is the potential length of your life. If you retire at age 65 and live until age 90, that’s 25 years worth of income and expenses you need to account for. Medicare and Medicaid can help but there are many things they do not cover. You may even find yourself ineligible based on your net worth. The best way to reduce these potential costs is to remain active and healthy as you age. Preventative exercise in your 60s is a great investment for your 80s. You’ve worked hard to reach retirement and you should invest in your ability to enjoy it. A serious illness for yourself or your spouse could possibly destroy your savings. Fidelity estimates that a 65-year-old couple will incur $220,000 in medical expenses during retirement.

Failing to Diversify Your Risk - Many people who believe their personal savings and Social Security benefits will be enough to take care of their retirement. The addition of a 401k or IRA can give you a nice boost, but there is more you can do with your income. To protect yourself against the market, while providing the potential for strong returns, spread your investments across a range of risks. This is where a professional adviser can help structure your asset allocation to create a portfolio with a mix of low-risk bonds, CDs, and annuities as well as higher-risk stocks.

Retiring With Too Much Debt - You should make paying off high-interest credit cards a top priority when approaching retirement. It may not be possible to begin retirement entirely debt-free, but the interest payments on high-interest accounts will eat away at your savings. If you are in good health and can afford to work for a few more years, delaying your retirement may give you the breathing room to eliminate this debt. No one wants to spend his or her retirement paying off pre-retirement expenses.

Refusing to Downsize Lifestyle - Depending on the level of savings, retirees should expect to reduce their living income by 25% or more. Many people are tempted to immediately go on a vacation or make a big purchase, but these decisions can have a lasting effect on future savings. The two major areas that a retiree can address are his or her home and vehicles. Moving into a smaller house or to a less expensive region can take a large chunk out of your expenses. Reducing the family fleet to a single vehicle or acquiring a more fuel-efficient vehicle will also free up more income. This is the tradeoff you make for the free time that retirement allows.

Source:  Julie Ewald, MyBankTracker

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

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