Posted by LLOYD J CAZES CPA

Common Money Mistakes Retirees Make and How to Avoid Them

Common Money Mistakes Retirees Make and How to Avoid Them

Every person has their own financial plans. There are also mistakes that are common. If you are a retiree and unsure if you have a common mistake, read on to know how you can avoid them:

Mistake 1: Keeping all your funds in cash

A person who keeps his or her money in cash is the complete opposite of the at-home trader. By that, it means in money-market mutual funds or bank accounts. Cash seems like a good idea and feels safer -- is what some retirees think. Well, at least now you know you are not getting to be ripped off. 

Not being able to keep up with inflation is the problem. For retirees who face health care costs accelerate much than the cost of living, this is a particular problem. 

Mistake 2: Thinking that surpassing the market is possible

Outperforming the market is so rare even for professional traders who buy and sell individual stocks over the long term. Excess volatility is the moving in and out of individual stock or known as “active” strategy -- this can also put your investments at risk. 

However, there are a couple of things you should be aware of if you are pursuing an active strategy:

  • You are not betting in the company’s performance when you buy a stock because you think it will go up, instead, you are betting that it will go up more than professional whose full-time job is to study that stock. And they can make trades based on reports not even widely known yet on their super-fast computers. 
  • Investment performance performs much worse than the market every once in a while but often look better thank the market during most years -- that’s why higher-volatility strategies can be misleading. That means you could be teeing yourself up for a big, unexpected loss even if you have beaten the market over the last 10 years. 

Mistake 3: Your savings are being steered too clearly by you

Planning is very important if you are thinking of leaving money to children, charity, or loved ones.  You don’t have to be afraid of dipping into your savings for retirement if you weren’t prepared -- well, that’s what it’s for.

The transition from saver to spender is a big struggle for many retirees. To give you the confidence to take that trip you’ve always dreamed of, spending a little more on yourself, or making that donation to a charity, and consult with an adviser to come up with a realistic financial plan.

If you are worried about losing money due to a downturn in the stock or bond market that’s why you are afraid to spend or make a donation, then insurance may help you. For instance, people who plan to rely on their savings for these years may end with lesser lifetime spending power than those people who use a deferred annuity (it is where you will receive an installment payment starting at 85 or so after you give insurer money). 

Of course, to help you figure out what expenses you should be prepared for in the future, it is important to talk to a financial planner. 

Mistake 4: You feel trapped by real estate

The house is the primary asset for many retirees. That’s why it can make the difficult decision to sell your family home even harder though it can be great news for your financial future. 

Worrying about putting yourself in a position where you will lose your ability to leave an inheritance or where you can’t afford rent is very normal especially when you decide to sell your home. But you can’t be certain how things will turn out until you crunch the numbers in a spreadsheet. 

Selling your home can let you live off the difference and invest the money, you can buy something less expensive, or covered with the resulting assets, in some cases. In the end, there is an assurance that you will end up having more money to leave behind instead of less. 

Avoiding these mistakes using these 3 ways

First, the risks you want to avoid -- like medical expenses, out-of-pocket long-term care, property repairs or outliving your assets should be considered. Either using your assets or carefully chosen insurance products, you have to figure out a strategy to address them. 

Second, you should have an investment approach that you could easily explain to a friend and it should be simple, broad-based, and diversified. 

And lastly, figure out how much you can live on based on conservative assumptions. Then, to enhance your quality of life, use that money in the best possible way. 

LLOYD J CAZES CPA
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