After all the years you’ve spent building your nest egg for retirement and the hard work you’ve put in, you’ll want to be extra careful in order to avoid spending your money too quickly. In addition, you’ll also want to watch out for tax traps and fraudulent scams that can eat up your retirement savings.
Many retirees are uncertain if they have enough money to last through their retirement. At least 47% of retirees do not think they’ve built up enough retirement savings, according to a recent survey from the Transamerica Center for Retirement Studies.
So to help you make the most of what you’ve saved, here are 8 things to watch out for that can inadvertently make you go broke in retirement.
- Spending too much.
This seems like a given, but adjusting your lifestyle if necessary is key to making your money last over the long-term.
Nearly 46% of retirees spent more per year in the first two years of retirement than they did before retirement according to the Employee Benefit Research Institute. Retirees can expect to live on average to age 84 for men, and age 87 for women according to the Social Security Administration, so it’s essential to keep spending in check.
So where in your budget can you cut costs? Cutting expenses where you are able can give you additional peace of mind as you begin using the money you’ve saved over the years.
- Using retirement accounts in the wrong order.
Though it won’t leave you completely broke, optimizing the order in which you use different retirement accounts can definitely save you some big bucks.
According to Schwab-Pomerantz, the first thing to draw from is the principal from maturing bonds and certificates since they are no longer bearing interest.
If you’re 70½ or older, the next thing to do is to take required minimum distributions from traditional tax-deferred accounts like IRAs and 401(k)s, since you’ll face penalties from the IRS if you don’t.
Next, you’ll want to sell from taxable accounts where you only pay capital-gains tax, but you won’t have to pay a capital gains tax if you’re in the lowest two income tax brackets. Then, use your tax-deferred and lastly, Roth accounts to get the most out of your retirement savings.
Another smart option is to obtain a HECM Line of Credit that you can draw from to live on in lieu of drawing from your principal in retirement. Read more about that here: http://www.funds4seniors.com/uncategorized/journal-of-financial-planning-shows-how-to-add-30-years-to-retirement-fund-survival/
- Either abandoning stocks or investing too much in stocks.
It’s definitely a quandary — investing too much in stocks can leave you open to too much risk, while not investing in stocks enough won’t give you enough growth. ‘You need your money to continue to grow through those 20 to 30 years of retirement,’ says Carrie Schwab-Pomerantz, senior vice president at Charles Schwab.
Though there’s no real one-size-fits-all approach, for the average investor, Schwab-Pomerantz recommends 60% stocks leading up to retirement, 40% stocks in early retirement, then 20% stocks later in retirement. The key is to keep earning money while reducing your exposure to too much risk.
- Relying on only one source of income.
It’s best if you have multiple streams of income in retirement, especially in case one stream doesn’t pay as well as you planned.
According to the Transamerica Center for Retirement Studies, Social Security is the primary source of income for 61% of retirees. But, experts estimate that Social Security will only be able to pay 77% of current benefits by 2035.
But, when you put together 401(k), IRAs, pensions, inheritances and/or Social Security, you’ll have a strong, diversified portfolio to be able to fund your retirement.
A reliable source of income often overlooked in retirement planning comes from the equity in your home. 82% of the average retiree’s nest egg is locked up in home equity. The government insured HECM loan allows seniors to receive a guaranteed TAX FREE check for life no matter what happens to the home value (consult advisor). To see what you qualify for you can try the calculator here: http://www.funds4seniors.com/reverse-mortgage-calculator/
- Not considering the implications of taxes.
Taxes can hit you big time in retirement. So it’s important to understand how taxes can affect your income and retirement savings in order to keep the most money possible.
There’s a reason so many people move to Arizona and Florida during retirement — these states provide some of the most friendly tax climates for retirees. Be sure you understand the tax implications of all your accounts and plan accordingly.
- Getting scammed.
No one plans on or even decides to get scammed, but the fact of the matter is retirees are huge targets for fraud.
Scammers often pose as trustworthy people who just want to help. They often target older people are especially vulnerable — such as those who are isolated, lonely, physically or mentally disabled, unfamiliar with handling their own finances, or have recently lost a spouse.
That’s why you want to keep your eyes open and be aware of scammers at all times in order to avoid being defrauded.
- Using retirement money to assist family.
It’s difficult to say no to family in need, but many people do give money to their children and other relatives from their retirement savings without knowing how this may impact their financial stability down the road.
According to the Pew Charitable Trusts’ Survey of American Family Finances and the Panel Study of Income Dynamics at the University of Michigan Institute for Social Research, 25% of Americans received monetary assistance from family or friends during the past year. And, according to a study by Merrill Lynch Global Wealth Management and research firm Age Wave, over 60% of older Americans gave financial support to relatives, even to the point of delaying their own retirements.
Though it’s a good thing to help someone, you don’t want to put your retirement savings in jeopardy by doing so. Talk with a financial advisor first to understand if you are able to give any support. If you aren’t, there may be other ways to help, such as organizing some kind of fundraiser.
- Not having enough insurance.
Though cutting costs in retirement is crucial to make sure your retirement outlasts you, insurance is one of those areas where it may cost more in the long run by cutting corners.
Health insurance coverage is essential to keep a significant illness or injury from wiping out your retirement savings. Though Medicare Part A (hospital services) is free, Medicare Part B (doctor visits and outpatient services) is extra, and so is Part D (prescription drugs.)
Schwab-Pomerantz says, ‘Medicare is very complex, and it’s more expensive than people realize, so it definitely needs to be part of the budgeting process.’
You’ll also want to make sure you have adequate life and disability insurance if at all possible. And, if you find your home and auto insurance coverage isn’t adequate, you could invest in a separate umbrella liability policy. For a $1 million umbrella policy, your premiums would probably be about $300 a year.
Read more at clarkhoward.com!
Robert Snow Krepps, NMLS #255191, at HighTechLending Inc today to discuss how a reverse mortgage may be able to help you (877) 567 – 7476 or email@example.com .
HighTechLending Inc, NMLS # 7147, is an Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act.