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The Biggest Money Mistakes Retirees Make

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The Biggest Money Mistakes Retirees Make


The abundance of investment options that are available to us as we plan for a financially secure retirement can be daunting. Some retirees take too much risk. Others do not.

Here we look at the biggest mistakes retirees make, and how you can avoid them.

Taking too much investment risk.
Many retirees overestimate investment acumen, or they fail to make adjustments to 401(k)s and other retirement accounts as they approach retirement. Either way, the result is often an overexposure to risky stocks and stock mutual funds, concentrated positions in their employer's stock, and took this insufficient diversification.

Solution: To avoid getting hammered, rebalance your portfolio every so often. Sell winners and buy unloved but promising assets when they're cheap. Stay diversified among many different types of investments.

Consider a prudent allocation to guaranteed assets such as guaranteed investment contract annuities and whole life or universal life insurance.

Not taking enough investment risk.
Just as it's possible to take too much investment risk, it's also possible to take too little. If you try to play it safe, and never accept any kind of investment risk, you leave yourself exposed to the risk of inflation.

If inflation increases, "safe" investments like CDs and money markets may not be able to keep up with rising prices. Your retirement portfolio's buying power could get cut in half by the time you pass on.

Solution: Don't be afraid of time. While you don't want to take risks with money you'll need in the next year or two, you can still take on some risk with money you won't need for a decade or more, in the expectation of better returns over the long term.

If you retire at age 65, you or your spouse may well still be relying on your nest egg in 30 years. So, you may still have a substantial time horizon with a part of your Investment portfolio.

Failing to plan for long-term care costs.
Failing to plan for the crippling cost of assisted living, nursing home and other forms of long-term care is still too common. The average cost of a semi-private room in a nursing home in 2018 is $7,441 month, according to the "Genworth Cost of Care Survey".

Solution: Consider purchasing long-term care insurance - with a potential benefit equal to your net worth if you can afford it. If you use a qualified long-term care insurance policy and your state allows it, it may help protect your assets from being seized under a Medicaid Asset Recovery Program.

You may also consider a single premium life insurance policy that also comes with a long-term care benefit, if you qualify.

Thinking that Medicare covers everything.
Medicare is an important safety net - but there are large gaps in the coverage that frequently catch beneficiaries unawares.

For example, as noted above, Medicare does not generally pay for long-term care. It also doesn't cover prescription drugs, unless you enroll in Medicare Part D or a part C (Medicare Advantage) plan that includes drug coverage. It doesn't come with basic Medicare part A and B.

Solution: If you can't afford a significant financial shock from an unexpected medical expense, you may want to purchase Medicare supplement insurance (Medigap) or a Medicare Advantage plan that helps fill the coverage gaps in basic Medicare part A and B.

Failing to plan for a long life.
Americans are living longer and longer into retirement. This creates a strain on retirement accounts and increases the risk of outliving one's retirement assets. No stock or mutual fund can promise a monthly income you can never outlive and put it in writing.

Lifetime annuities, which provide a guaranteed income for life no matter how long you live, may be an important part of an individual retirement plan. If you are concerned about outliving your retirement nest egg, you should consider allocating a portion of your assets to an annuity large enough to cover extended life.

At Jennifer Lang Financial Services, we can help you find the best annuity to cover your needs. Contact us today.