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10 Worst Money Moves for Near Retirees


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About 10 years ago, I said to my dad, “Dad, I think I’m done making stupid mistakes.” Wouldn’t it be nice if I’d been right.

Mistakes are part of life. Some are easier to recover from than others. When it comes to money — and time — the closer you are to retirement the less time you have to recover from bad money moves. Don’t take any chances.

Here are the 10 money moves you need to avoid as you get near retirement:

The same investment approach that got you this far will work just fine in retirement, right? 

Maybe, maybe not. When you do your retirement planning right you will know specifically what amount of money needs to come out of which accounts in which calendar years. Suppose you’ll begin taking IRA withdrawals first because it will be most tax-efficient to do so, but your younger spouse won’t touch their IRA for at least 10 to 15 years? Should both accounts be invested in a similar way? I don’t think so. As you near retirement you’ll need to spend some time creating an investment approach that aligns each account to its specific goal, cash flow requirements and time frame.

2. Claim Social Security without a strategy 

If someone deposited an extra $50,000 or $100,000 into your retirement savings, it would make no difference at all to you, right? 

The right Social Security claiming plan leads to a result that is just like having more retirement savings. People mistakenly think that claiming later means they have to retire later or have less spending money early in retirement. This is not true. Retirement date and claiming date are not synonymous. For many upcoming retirees there will be little-known tax benefits to a delayed Social Security start date combined with early IRA withdrawals or Roth conversions. Married couples, those with a previous marriage that was at least 10 years in length and those with expected retirement incomes less than $90,000 should not even think about claiming without first creating a plan.

3. Avoid tax planning 

You feel like the government uses your money wisely so there is no reason for you to invest a few hours each year in tax planning, right? After all, who cares if you pay more than you might otherwise have to? 

One of the most important things you can do as you near retirement is create a multi-year tax projection that shows your expected tax liability each year in retirement by showing you where your expected income will come from, including future estimated required minimum distributions (you must begin taking these from IRA/401k accounts at age 70 1/2), Social Security, and pensions. Once you see what your marginal rate is expected to be each year you can proactively make decisions that can reduce your retirement tax liability. These decisions might involve taking IRA distributions earlier than you thought, funding a Roth IRA instead of your 401(k) plan, or converting IRA assets to a Roth. In my book Control Your Retirement Destiny I devote an entire chapter to the type of tax planning that can increase your after-tax income in retirement. 

4. Assume health care is covered 

You don’t need to budget much for health care because once you reach 65 Medicare’s got you covered, right? 

Sorry, it doesn’t work that way. Medicare will cover about 50% of your health care expenses in retirement. You’ll still have expenses for Medicare Part B and D premiums, dental, eye care, hearing, co-pays, etc. How much will that add up to? At a minimum plan on $400 – $800 per month in health care expenses. For current retirees, statistics show anywhere from 15% – 33% of their income goes toward health care. It’s a broad range because costs vary by location and health status.

5. Learn nothing

You’ll only need to rely on your retirement savings and planning decisions for the next 20 to 30 years. There’s no reason to learn much about it, is there? 

One of the first things I always tell a new client is “The truth is no one will ever care about your money as much as you do.” Time invested in your own financial success is worth it. Even if you plan on delegating to a trusted advisor, you need to know enough to find that person in the first place. There are numerous ways to learn: read a book or two, subscribe to financial magazines, or simply spend time on the Internet every week browsing retirement blogs, articles and research papers.

6. Don’t track anything 

Don’t track your net worth, spending habits, annual amount you contribute to savings or anything that has to do with your money. This way you won’t know if you are making progress toward your goal. It’s easier not to know, don’t you think? 

I grew up in the gym. It’s common in the gym to see people with notebooks. Why? They know keeping a record of their progress will help them reach their goals. If you have never created a net worth statement or spending plan (budget) you are missing out on a big opportunity. These types of schedules are financial tools that can be used to steadily nudge you toward your goals. You need a plan that outlines your goals and a way to measure your progress toward them.

7. Upsize everything 

The economy is improving and you want to appear as if you are doing well. You have to spend money to make money right? What will it matter if you put off additional savings for another year or two? You’ll make up for it later. 

The so-called “wealth effect” can be a dangerous thing. As your income and account balances go up, you start to relax a bit, which is good, but only to a point. When you find your spending increases are starting to outpace your income increases, you have a problem. And that increase in your account balances because the market did well last year? That does not mean there is now room for the latest model car — unless that was part of your original plan. When you get an increase in income always allocate a portion of it toward an increase in your savings rate. Once that is done then any excess can be used toward extras.

8. Decrease your emergency fund

You only need an emergency fund in case you lose your job. So once you’re retired, you can spend that emergency fund on a cool vacation, right? 

I’ve yet to work with a single retired client who didn’t encounter an emergency, or some form of unforeseen expense, within their first five years of retirement. Most of the time it was something involving an adult child. A few times it was a health care event. And once or twice it was a major home repair. The best retirement plans are those that leave wiggle room for things you can’t anticipate. That means the emergency fund is still a needed tool. You are best off having a year’s worth of spending tucked away in a safe investment when you reach retirement age. Don’t include it as part of your plan. It is there as reserves for the things that will happen that you can’t foresee.

9. Take on risk to make up for lost time

You got a late start saving for retirement and the stock market has been doing well. You should invest aggressively to make up for lost time, right?

I frequently see financial advisors use software to illustrate how tweaking an asset allocation will deliver higher returns. This is blasphemous. A more aggressive allocation gives you the potential for higher returns — along with the potential for lower returns. If you’re already running short of your goals, taking on more risk may help, but it’s far from a sure thing. Before taking on additional investment risk, consider options that will deliver a more reliable outcome: like working longer, spending less and saving more. If you decide to take on investment risk it should be part of a well diversified plan that insures you wouldn’t need to liquidate any of your riskier holdings in the event of a market correction

10. Don’t share your plans with the family

Your kids understand your retirement plans, your level of financial security, and exactly what they should do if something happens to you, right? 

Parents spend a lot of time worrying about their kids. Do they realize, their kids worry about them too? Your kids want to know you have a plan. They want to know who to call and how to help if something goes awry. Don’t leave it for them to figure it out once you’re gone. Involve them now in discussions about beneficiary designations, trusts and health care decisions. One of my fellow RetireMentors, Jack Tatar, has a book called that provides guidance on how adult children can initiate these conversations. But if you’re a parent, don’t wait for the kids to talk to you. Start the conversation yourself. 


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