Nothing guarantees there will be sufficient money to cover all costs in retirement. But there are some common mistakes to steer clear of as you grow older.
Falling for fraud. Scammers love to prey on older adults. According to the Financial Industry Regulatory Authority’s Investor Education Foundation 2012 survey, people who are 65 and older are 34% more likely than those in their 40s to lose money on a scam.
Misunderstanding Medicare. Gaps in coverage may exist even after you qualify for Medicare. For example, Medicare does not cover nursing homes and assisted living costs for long-term care.
Medicare Part A covers most medically necessary hospital, skilled nursing facility, home-health and hospice care. It’s free if you worked and paid Social Security taxes for at least 40 calendar quarters (10 years). If you worked and paid taxes for fewer than 40 quarters, you’ll pay a monthly premium.
Part B covers most medically necessary doctors’ services, preventive care, durable medical equipment, hospital outpatient services, laboratory tests, X-rays, mental health care, and some home health and ambulance services. You pay a monthly premium.
Investing too conservatively. An asset allocation over-weighted in bonds and cash might not generate enough long-term income from your portfolio, which needs to align your savings, your goals, and your appetite for risk. Retirees also often fail to factor inflation’s effects into financial plans.
Underestimating big expenses. Amid increasing health care costs, some seniors also underestimate the dollar price of a serious illness.
Assuming you’ll be able to afford your large house forever. You might be able to handle the costs of upkeep now, but compound the costs over 25 to 30 years to see if you can sustain it.
Not planning for potential incapacity. Have you documented how you want health care and property decisions made if you become incapacitated from illness or injury? Consider a power of attorney so someone can handle your financial affairs and a health care proxy designating someone to make medical decisions if you no longer can.
Becoming the family bank. Many seniors want to help their children and/or grandkids financially. But sometimes gifting can be detrimental to financial plans. Family members having a tough time financially often approach their baby boomer relatives who were responsible about saving and investing.
Lifespans are increasing. Plans should assume you will live to be 90 or more.
Ignoring Roth IRA conversion opportunities. A post-retirement Roth IRA conversion may make sense, given longer life expectancies and depending on your tax bracket.
Ending contributions to a retirement plan. Most people do not contribute to a retirement plan during retirement – but such a move can make sense for those still earning income. Continuing to fund a tax-deferred IRA could mean more money will be available later in your life. And for many seniors, there’s a lot more life left than you may expect.
Modera Wealth Management, LLC (“Modera”) is an SEC-registered investment advisor with places of business in Massachusetts, New Jersey, Pennsylvania, North Carolina, Georgia and Florida. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. SEC registration does not imply any level of skill or training. For information pertaining to our registration status, fees and services, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov) to obtain a copy of our disclosure statement set forth in Form ADV Part 2A. Please read the disclosure statement carefully before you invest or send money.
This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements, information and opinions expressed in this article are subject to change without notice.
Investing in the markets involves gains and losses and may not be suitable for all investors and should not be considered a solicitation to buy or sell any security or to engage in a particular investment or financial planning strategy. Individual client asset allocations and investment strategies differ based on varying degrees of diversification and other factors. Diversification does not guarantee a profit or guarantee against a loss.