Thursday, August 30, 2012

8 Major Financial Mistakes Retirees Make

International Money Pile in Cash and Coins (Photo credit: epSos.de)Ah, there’s nothing greater than walking out of your office for the last time of your working life. While many of you may have already experienced this situation, there are millions of us that have to wait months or even years. As we all know by now, money is king in retirement. Without it, how are you going to survive? To make sure that this money lasts until your last day on earth, here are some mistakes that you will want to avoid:

1. Retiring on age instead of your money

If you think about your retirement plan, do you want to retire on your birthday or do you want to retire with a certain amount of money? Sadly, many potential retirees want to retire at a certain age rather than have a certain amount of money. As we already mentioned above, money is KING. If you don’t have enough, you won’t enjoy retirement. Focus on a money number, and when the time comes, its then time to retire.

2. Watching your risk

As you grow older, do you really want to invest in stocks or bonds that are deemed risky? Sure, you can take the risk while your 20s or even in your 30s. Why? You have years ahead of you to make up for the losses (if they occurred.) As you grow older into your 50s or 60s, you will want to make sure that your portfolio is relatively safe. Whether you’re investing in dividend stocks, popular company stocks or CDs, it’s best to make sure that your money grows rather than go down the toilet.

3. Retiring with debt

When it’s time to walk out your office for the last time, you don’t want to have any debt. The problem with many retirees is that most have house payments, $10,000 on their credit card and two car payments. While you may be caught up in a spending frenzy, it’s extremely important that you have as little debt as possible. That way, if emergencies do pop up, you will have the money set aside to cover them. If you have a load of debt, it can be hard to do.

4. Avoiding the professionals

Yes, a lot of money professionals out there get a bad reputation but not all of them are bad. To make sure that you’re on the right path to a great retirement, make sure that you talk with a financial advisor at least once. No, you don’t have to have them invest your money for you, it’s just nice to get a view from the outside to make sure that you’re on the right path.

5. Managing your income stream

Once the paychecks stop coming in, it’s now time to tap into your retirement accounts. Whether you want to live off interest, dip into the principal or a little of both, it’s important to have a plan laid out. That way, you know exactly where you should be at the end of each year. If you start spending too much, you could exhaust your savings relatively fast. It’s important to have goals in mind and be sure to stick to them so that the money lasts.

6. Collecting social security

The future of social security is up in the air, but when the time comes, it should be here. The worst case scenario is either your benefits are cut in half or it’s intended for people that truly need it. Regardless of what the situation is, make sure that you know when the best time is to collect from the government. As of 2012, you’re eligible to collect at the age of 62, but if you wait until you’re 70, you can collect the biggest paycheck. In fact, by waiting nine years years, your check can almost be double compared to collecting at 62. Be sure to do the math to make the most out of your social security.

7. Watch inflation

While we may not see it in front of our eyes, inflation does exist! Over the past 30 years, inflation has grown at a steadily 3%. Be sure to factor in this with your prices because as time goes on, your dollar is going to be worth less and less. While your dollar won’t be worthless tomorrow, time will fly right by and before you know it, your spending power won’t be as strong.

8. Diversify

Don’t just set all of your money into a lousy CD collecting less than 2%. Instead, try to get into other markets that can make you some money. For example, dividend stocks can pay as much as 5%+ annually and many can be deemed relatively safe. By studying investments and investing in more than one thing, this can give you more eggs in your basket.

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This was a post written by Hannah M. She is the co-founder of www.howmuchisit.org, a website that researches the price on everything ranging from home goods to surgeries.

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