4 Critical Money Mistakes You Must Avoid in Your 60s
When most of us think about money mistakes, we assume they’re errors in judgment made in our younger years – our 20s, 30s or even 40s.
By the time we reach our 60s, we expect we’ll be wiser, and able to make smart decisions with our cash. The bad news is that money mistakes are no respecters of age, and someone in their 60s can make errors just as easily as someone in their 30s.
The main difference is that you’re that much closer to retirement, so mistakes that would have been survivable, if not ideal, are now catastrophic.
Let’s take a look at four of the critical mistakes you might make in your 60s and how to avoid them.
Too Many Make Money Mistakes by Relying Too Heavily on Stocks
During your 20s and even 30s, it’s perfectly acceptable to take on additional risk by putting a larger portion of your investment funds into the stock market, mutual funds and other vehicles prone to turbulence.
However, as you approach retirement age, you cannot take the same risks. You’re about to shift from accumulation mode to distribution – you’ll no longer be building that nest egg, but actually using it.
Therefore, it makes sense that you need to reduce your risk by slashing the percentage of your portfolio made up of high-risk investment options like stocks.
With that being said, you don’t want to underexpose yourself to equities, either.
One expert recommends a 50/50 split between stocks and bonds. While that is a good idea, the fact remains that everyone’s situation is unique, and you should proceed with a sound investment plan tailored to your needs, an amount of debt, and goals for your retirement years.
In fact, you might find that a 50/50 split still carries too much risk, and a 60/40 split would be better.
Another option is the Asset Dedication Approach. You should put your money first in the portfolio of individual bonds to ensure that you have a predictable cash inflow for the next decade. The rest of your retirement nest egg should be held in stocks.
Jumping on the Social Security Bandwagon Too Early
Yes, you can legally start drawing Social Security payments when you turn 62.
In addition, most Americans, while planning to retire later, find that they are unable to avoid early retirement and begin drawing payments as soon as possible.
It is crucial that you avoid this if you can due to the permanent penalty you’ll incur. Simply put, staving off your retirement until the age of 70 could mean the difference of about $17,000 per year in your Social Security payments.
If you have a two-income household and one spouse earns less, you might consider taking payments on the lower earner’s money at age 62, but leave the higher earner’s money alone until he or she reaches 70 years of age.
Really, what could you do with an extra $1,433 per month?
Living Too “High on the Hog”
You’re about to retire, so you think you’re out of the woods. Nothing could be further from the truth.
This is one of the most important money mistakes to avoid.
Sure, you have fewer expenses because your children have left the nest, but that doesn’t mean you can spend whatever you want whenever you want to do so.
If you increase your standard of living when your children get out on their own, you end up investing less, which means your nest egg is smaller. Rather than increasing your spending, increase your savings and investing.
This is particularly true if you started investing later in life. Now is the time to invest more heavily, to save more money, than you were able to while putting your children through school.
Double-down on your investment activities to ensure that you actually have money available to you once you hit retirement age.
Forgetting about the Actual Costs of Long-Term Care
Sure, you might think that Medicare will be there to help you through those years, but that may not happen. Even if you qualify for medical care, you might find that it doesn’t cover all of your costs.
As Sharon Epperson states in her article for CNBC, “Qualifying for Medicare does not mean your health-care expenses will be covered. Medicare helps to pay for hospitalizations, doctor visits, and prescription drugs, but people on Medicare generally still pay monthly for premiums for physician services and prescription drug coverage.”
To back this up, Heidi Brown writing for Forbes actually encourages those who qualify for Medicare to plan for up to $6,500 per year in extra medical costs that are not covered by Medicare.
A Bonus Mistake: Forgetting about Taxes
It would be nice if taxes went away when you retired, but that’s too much to hope for. Uncle Sam still wants his cut of your income.
You might hope to pay less in taxes once you retire, but that might not be the case, either. Too many retirees find that because their workplace deductions like their payments into a health savings account or their 401(k) deductions are gone, their taxes actually increase.
These are just a few of the money mistakes that you must avoid in your 60s.
It is also crucial that your portfolio includes the right mix of stocks and bonds. Simply put, no Boomer can avoid the need for high-quality, individual corporate bonds in their portfolio.
However, make sure that you’re not investing in government bonds, as interest rates are set to rise and your earnings will suffer. It is also crucial that you avoid bond funds, which are not the same thing as individual bonds and can actually cost you your retirement if you’re not careful.