Stephan Baldwin is the Director of Business Development for Assisted Living Center, an online resource for aging care communities.
You’ve worked…you’ve saved…and now it’s time to enjoy your retirement years. You may think you have enough in your accounts to get through the next 25, 35 or even 45 years (and that may be the case), but what if you don’t? How will you survive?
Relax! You can make that nest egg stretch – if you know how to avoid some of the more common mistakes to which older adults fall prey.
Finances can be stressful, but avoiding common mistakes will put you in a great position.
Mistake #1: Moving Your Money Around
We are a society of instant gratification. If one account doesn’t seem to be making enough, we move our money to the next (hopefully better) account. Don’t let the promise of higher yields and more profits convince you to roll your money into a new account. That move could cost you thousands. We like to think our financial advisor has our best interest at heart, but that is not always the case. Financial specialists make high commissions on rollover accounts (typically 5-6%), so be careful that the decision to move your money around is being made with your best interests in mind – and not your financial planner’s.
Additionally, if you cash out your account within the first seven years, odds are good you’ll be charged surrender fees for doing so. In many cases, they can add up to 7% of your total cash-out amount. Before risking that loss, consider the overall advantages of making the switch. In most cases, the amount gained simply does not justify what is lost.
Mistake #2: Cashing Out Your Pension
Employers want to get away from the pension game. Why? They simply cost too much. If you are lucky enough to still have a pension and are being asked to cash it out, carefully consider your options. Yes, there are benefits to rolling those pension monies into private investment accounts that you control – but there are also some real drawbacks.
Pensions are guaranteed income. When you reach a predetermined retirement age, you are guaranteed a certain amount each month (or year) to live off of as long as you live.
Pensions are not subject to economic downturns; investing your retirement savings on your own can generate high dividends, but it can also result in lost revenue, especially when the stock market takes a dive. While the annual amount received with a pension does not fluctuate during good economic times, you also don’t lose anything when things turn sour.
Pensions don’t run out: it doesn’t matter how long you live; that money keeps coming until you die. Not so with private investments. If you happen to outlive your principle, you will run out of money, and an income.
Use this retirement calculator to compare lump sum vs monthly payments for your pension.
Mistake #3: Paying High Fees
Few people truly understand how much money their investment accounts cost them. Failing to keep up with the details of those accounts could result in losing tens of thousands of dollars over the accounts’ lifetimes. Be sure you understand what fees you are paying (and how much they are). If certain fees seem to high, ask questions and double-check that you are not overpaying – and if you are, find a new financial advisor.
Taking the time to plan will help you avoid any unwelcome surprises.
Mistake #4: Playing it Too Safe/Risky
Moderation is key to making the most of your retirement savings. All too often, retirees fall victim to fear when it comes to investing, and they fail to take advantage of relatively safe (but higher-yielding) investment opportunities. Be sure to adjust your investment allocations to include equities for their long-term growth potential. The odds are good that you have time to recover from a short-term loss, so don’t play it too safe.
That said, being too aggressive in your investment strategy can backfire, leaving you with far less than you need during your Golden Years. Gauge your risk and keep it at a moderate level, especially during your early retirement years. Many people fail to understand that investing aggressively during the first few years of retirement can leave them vulnerable. A sudden and dramatic downturn can leave you struggling to bounce back for years. The longer you must live off those retirement savings, the less aggressive you should be in your investment approach. Safeguard what you need to ensure you will have enough for the long term.
What Money Mistakes Are You Making? Is Your Retirement Secure?
Taking the plunge into retirement can be scary. We don’t know what lies ahead, and no matter how well we plan for the future, we have no real idea how much money we’ll need to make it through the latter stages of our lives. With some thought, risk management help, and a clear head, you can ensure that your retirement savings will last. Watch out for the above mistakes, keep a close eye on your investments, and you will be fine.
A good retirement calculator can help you find retirement security.
Now get out there and enjoy your retirement!
