By
Marilyn Lewis Money Talks News | May 13, 2015
Following
are eight money mistakes people nearing retirement make, and how
to avoid such foibles so they don’t crack your nest egg.
Mistake 1: Not planning for
medical expenses
Medicare
kicks in at age 65, but that’s not the end of your medical expenses. Fidelity
Benefits Consulting estimates a 65-year-old couple who retired in 2014 will
need $220,000 of their own money for medical expenses over the course of
retirement. Such costs include deductibles for Medicare Part A and Part B
(in-patient and out-patient insurance) and premiums and out-of-pocket costs for
Medicare Part D prescription drug coverage.
Take action:
·
Read The ABCs of
Selecting a Medicare Supplement Plan, then, if you have further
questions, call your state
insurance commissioner’s office to get help choosing the most
cost-effective Medigap plan.
·
To help dodge expenses from illness and disability, exercise
regularly and stay at a healthy weight. (Get a physical exam before beginning a
diet or exercise program.)
·
Check into long-term-care
insurance. It’s cheaper if you sign up when you’re younger.
·
Think about moving closer to good medical centers, hospitals and
family.
Mistake 2: Underestimating
costs
Retirement
costs can be surprising — surprisingly high, that is. You can manage costs
by earning extra income in retirement. On its website, the Social Security
Administration offersrules for
working while receiving Social Security benefits.
Today,
numerous employers offer home-based jobs. But the field is rife with scammers,
so learn the red flags.
Take action: Start shopping for jobs. For ideas,
read “7 Tips to Find a
Job in Retirement.”
Mistake 3: Celebrating with
a big purchase
No doubt
you’ve got a wish list for retirement. But hold off on making major purchases
at first. Instead, give retirement a spin and see what you’re spending each
month.
Track expenses
– every single one. A year’s tracking gives the best picture because it
includes one-time and seasonal expenses.
Take action: It doesn’t matter what
tracking system you use. Just find one you like and keep it up. Keep receipts,
watch bank and credit card accounts online on a weekly basis, and update your
tracking regularly. Here are a few approaches:
·
Try free online budget programs. Money Talks News partner PowerWallet lets
you track expenses automatically for free. It and other free money management
services like Mint and BudgetTracker make money by recommending financial
products and supplying coupons.
·
Pay for a program such as Quicken.
·
Do-it-yourself. Track expenditures manually and offline on a
spreadsheet.
Mistake 4: Helping out
adult kids
Many
parents set themselves up for a crisis in retirement by supporting adult
children financially. A study by Merrill Lynch says 60 percent of people 50 and
older are assisting adult relatives financially.
If you
are a parent who gives money to an adult child, remember the
following: Adult children still have time to pay off college loans and
save for retirement. Their parents — in other words, you — are running out of
time to save for the golden years ahead.
Take action:
·
Make a concrete plan with goals and deadlines for gradually
withdrawing financial help from your kids.
·
Discuss the changes with your kids and help them learn to
budget.
·
Model financial restraint and responsibility for your kids.
Mistake 5: Claiming Social
Security too soon
Waiting
to claim Social Security benefits is one of the best investments
around. If your full retirement age is somewhere between 66 and 67,
your benefit check could grow by 32 percent if you wait until age 70 to
collect, Social Security spokesman Michael Webb said in an email. If your full
retirement age is 67, waiting until 70 yields a maximum possible increase of 24
percent.
The average benefit Social
Security pays is $1,294 — $2,111 for a couple. If your full retirement age is
66, waiting until 70 would grow a $1,294 benefit to $1,708 a month for life.
For couples, if both spouses wait to 70, the $2,111 average combined benefit
can grow to $2,787 a month.
On the
other hand, about half of retirees take Social Security at the earliest
possible moment — when they’re 62. U.S. News & World Report says:
Social
Security benefits are reduced for workers who sign up at age 62, and the amount
of the reduction has recently increased from 20 percent for people born in 1937
or earlier to 25 percent for baby boomers born between 1943 and 1954. … The
reduction in benefits for people claiming at age 62 will further increase to 30
percent for everyone born in 1960 or later under current law.
Take action:
·
Go to SocialSecurity.gov’s
My Account to see your estimated benefits. If you’ve paid into
the Social Security system, you can create an account and pull up a statement
showing what you’ll earn by claiming benefits at various ages.
·
Keep your current job if you can and delay retirement. Or get a
part-time job that helps you hang on longer before claiming benefits.
·
Hire a Certified Financial Planner to review your retirement
plan, income and expenses with you.
Mistake 6: Forgetting to
plan for taxes
The IRS
probably won’t disappear from your life when you retire.
For
instance, traditional tax-deferred retirement plans like 401(k)s and IRAs
require you to withdraw a minimum amount each year beginning in the year you
turn 70½. If you don’t, you could be hit with a big penalty.
Good
planning, especially before retirement, can help manage the tax bite. One
strategy, Stacy Johnson says, is to roll a portion of retirement savings into
a Roth retirement
plan, which has no minimum distribution requirements. Roth plans
require taxes to be paid before money goes in. You withdraw the funds tax-free
later. The strategies you use will depend on your income now and what you
expect it to be after retirement.
Take action: Make a plan — or get expert
help making one — that takes taxable retirement income into account.
Mistake 7: Ignoring estate
planning
Get your
affairs in order before you’re ill or old so you’ll have control over where
your money and possessions go. It’s a kindness to your heirs, too, because they
won’t be saddled with the work.
Take action:
·
Make or update your will and,
if appropriate, make a revocable living
trust.
·
Sign a durable power of attorney naming someone you trust to
make your legal and financial decisions if you cannot.
·
Assign health care power of attorney to someone to make your
medical decisions if you’re unable.
Mistake 8: Investing too
conservatively
As
retirement grows nearer, it seems prudent to invest more conservatively. But
you could live another 20 years. Savings held too conservatively shrink because
of inflation. A portion of your funds needs to grow.
“Never
taking risk means taking a different risk,” Johnson says.
Take action: Learn about investing so you can be
confident in taking measured risks to earn gains, even as you grow older.
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