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Retiring soon? Don't make these 8 mistakes

You can head off some of the worst financial blunders in retirement by following these action steps.

By MSN Money Partner May 7, 2014 11:49AM

This post comes from Marilyn Lewis at partner site Money Talks News

 

Money Talks News on MSN MoneyThere is plenty you can do to avoid running out of money in retirement. Whether you are newly retired or retiring soon, planning is key.


Some retirees just plunge in and get into trouble.


Here are eight money mistakes those nearing retirement make and how to avoid them so your nest egg lasts.


Mistake 1: Not planning for medical expenses

Medicare kicks in at age 65, but that's not the end of your medical expenses. Fidelity Benefits Consulting estimates a 65-year-old couple retiring this year will need $220,000 of their own money for medical expenses over the course of retirement. Those include deductibles for Medicare Part A and Part B (in-patient and out-patient insurance) and premiums and out-of-pocket costs for Medicare Part D prescription drug coverage.


Take action:

  • Call your state insurance commissioner's office to get help choosing the most cost-effective Medigap plan.
  • To help dodge expenses from illness and disability, exercise regularly and stay at a healthy weight. (Get a physical exam before beginning a diet or exercise program.)
  • Check into long-term-care insurance. It's cheaper if you sign up when you're younger.
  • Think about moving closer to good medical centers, hospitals and family.

Mistake 2: Underestimating costs

Retirement costs can be surprising. Surprisingly high, that is. You can manage costs by earning extra income in retirement. Here are the rules for working while receiving Social Security benefits.


AARP tells the story of Jackie Booley, who retired at 61 but later began working from home for about $9 an hour as a customer-service representative. Numerous employers offer home-based jobs. But the field is rife with scammers, so learn the red flags.


Take action: Start shopping for jobs. (Research compensation at PayScale.com.) These articles have job ideas and resources:

Mistake 3: Celebrating with a big purchase

No doubt you've got a wish list for retirement. But hold off major purchases and expenses at first to give retirement a spin and see what you’re spending each month. Track expenses -- every single one. A year's tracking gives the best picture because it includes one-time and seasonal expenses.


Take action: It doesn't matter what tracking system you use. Just find one you like and keep it up. Keep receipts, watch bank and credit card accounts online on a weekly basis, and update your tracking regularly. Here are a few approaches:

  • Free online budget programs. Money Talks News partner PowerWallet lets you track expenses automatically for free. It and other free money management services like Mint and BudgetTracker make money by recommending financial products and supplying coupons.
  • Quicken. Users can enable online features or input expenditures manually. Cost: $30 and up.
  • Microsoft Money Plus Sunset Deluxe. MSN's popular software tool has been discontinued and replaced by (free download) Microsoft Money Plus Sunset Deluxe. It's a no-frills product -- no tech support and no linking to online accounts.
  • DIY. Track expenditures manually and offline on a spreadsheet.

Mistake 4: Helping out the kids

Many parents set themselves up for a crisis in retirement by supporting adult children financially. A study by Merrill Lynch says 60 percent of people 50 and older are assisting adult relatives financially.


Most people realistically can't do both. Adult children still have time to pay off college loans and save for retirement. Their parents are running out of time.


Take action:

  • Make a concrete plan with goals and deadlines for gradually withdrawing financial help.
  • Discuss the changes you are making with your kids.
  • Help them learn to budget.
  • Model financial restraint and responsibility for your kids.

Counselor going over papers with older couple © SelectStock, the Agency Collection, Getty ImagesMistake 5: Claiming Social Security too soon

Waiting to claim Social Security benefits is one of the best investments around. Your Social Security account earns 8 percent a year when you hold off claiming benefits beyond your full retirement age.


If your full retirement age is somewhere between 66 and 67, your benefit check could grow by 32 percent if you wait until age 70 to collect, Social Security spokesman Michael Webb said in an email. If your full retirement age is 67, waiting until 70 yields a maximum possible increase of 24 percent.


The average benefit Social Security paid in January was $1,294 -- $2,111 for a couple. If your full retirement age is 66, waiting until 70 would grow a $1,294 benefit to $1,708 a month for life. For couples, if both spouses wait to 70, the $2,111 average combined benefit can grow to $2,787 a month.


On the other hand, about half of retirees take Social Security at the earliest possible moment, when they're 62, locking themselves into a much lower monthly benefit than if they had waited until full retirement age. U.S. News & World Report says:

Social Security benefits are reduced for workers who sign up at age 62, and the amount of the reduction has recently increased from 20 percent for people born in 1937 or earlier to 25 percent for baby boomers born between 1943 and 1954. … The reduction in benefits for people claiming at age 62 will further increase to 30 percent for everyone born in 1960 or later under current law.

This Social Security Administration table shows the reduction for taking early Social Security benefits depending on the year you were born.


Take action:

  • Go to SocialSecurity.gov's My Account to see your estimated benefits. If you've paid into the Social Security system, you can create an account and pull up a statement showing what you'll earn by claiming benefits at various ages.
  • Keep your current job if you can and delay retirement. Or get a part-time job that helps you hang on longer before claiming benefits.
  • Hire a certified financial planner to review your retirement plan, income and expenses with you. Find a fee-only certified planner.
  • For more tips on boosting your benefits, read "13 Ways to Get More Social Security." 

Mistake 6: Forgetting to plan for taxes

The IRS probably won't disappear from your life when you retire.


For instance, traditional tax-deferred retirement plans like 401k's and IRAs allow you to contribute pretax money to the accounts with the understanding that Uncle Sam will get his cut when you draw from the accounts after retirement. To that end, those accounts require you to withdraw a minimum amount each year beginning in the year you turn 70½. If you don't, you could be hit with a 50 percent penalty on the amount you should have withdrawn.


There are calculators online that can help you compute required distributions, like this one from Fidelity. You can also read more about required distributions at this page of the IRS website.


​Good planning, especially before retirement, can help manage the tax bite. One strategy, Stacy Johnson says, is to roll a portion of retirement savings into a Roth retirement plan, which has no minimum distribution requirements. Roth plans require taxes to be paid before money goes in. You withdraw the funds tax-free later. The strategies you use will depend on your income now and what you expect it to be after retirement.


Take action: Make a plan -- or get expert help making one -- that takes taxable retirement income into account.


Mistake 7: Ignoring estate planning

Get your affairs in order before you're ill or old so you'll have control over where your money and possessions go. It's a kindness to your heirs, too, since they won't be saddled with the work.


Take action:

  • Make or update your will and, if appropriate, make a revocable living trust.
  • Sign a durable power of attorney naming someone you trust to make your legal and financial decisions if you cannot.
  • Assign health care power of attorney to someone to make your medical decisions if you're unable.

Learn more from "Estate-planning documents you need right now."


Mistake 8: Investing too conservatively

As retirement grows nearer, it seems prudent to invest more conservatively. But you could live another 20 years. Savings held too conservatively shrink due to inflation. A portion of your funds needs to grow.


"Never taking risk means taking a different risk," Stacy says.


Take action: Learn about investing so you can be confident in taking measured risks to earn gains, even as you grow older.


Read "Ask Stacy: How do I get started investing?"


What money mistakes have you seen retirees you know make?


More from Money Talks News

8Comments
May 8, 2014 7:41AM
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Continuing to vote for those that believe those that make more should pay more.  Your retirment pension, investments, 401k, IRAs, may form a high percentage of your income, the government does not believe your planning and saving through your most productive years should be rewarded.  They believe that you need to share more with those that have not done so.  They will tax your social security if your income is above a certain level, only pay you a certain amount regardless of how much they have taken from you to support this mandantory program, and will not allow you to leave to your heirs any amount that you have paid in but have not used so that they can provide that money to someone who did not plan or invest as wisely as you.  If you decide to work part time and believe that you should be compensated for this work people will believe that you are just taking jobs from the younger generation and because of this extra income they will reduce you social security benefits.  If you happen to have an employer who provides you with medical insurance then your ability to use the medical insurance that you purchased through your Medicare contributions will be greatly diminished. 

 

This government meddling in the area of personal responsibility, in the name of a safety net for those that are unwilling to take care of themselves, needs to be phased out now.  Phased out in such a manner that those that have paid into the system receive what they were promised but the younger generation is not saddled with this socialistic redistribution of wealth program.

May 8, 2014 6:59AM
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Mistake number one not planning and starting to save/invest early in life. The power of compounding is lost on many people.Also why not use the retirement information on the web? most is free. I use several sites including Dividendchannel, ETFchannel and the site Retirement And Good Living which provides information on many retirement topics including finances, health, retirement locations, travel, part time jobs and more.
May 8, 2014 2:42PM
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The booming democrat recovery 52 million on food stamps Poverty at a 50 year high Salaries at a 20 year low Vote out all lying democrat failures

May 10, 2014 12:05PM
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I went to the social security office and inquired about applying for benefits as I had just turned 65 in April. The specialist was very informative and explained how the system works. Basically once you reach the age of 65 you can work all you like with no penalties or reduction in benefits. Additionally, by not claiming benefits at  age 62 it will now take me  several years to brake even on the amount of money I lost. I was also informed that if I decide to wait until age 70 to draw benefits, (like a lot of these so called experts claim is best), I would have to be age 83 to break even before realizing any additional benefit. My point is be careful, get all the facts and don't be to quick to listen to some internet so called expert. 
May 10, 2014 4:55PM
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Mistake 4: Helping out the kids - this is a "hard hitter"!!!!  Even if you are careful, circumstances beyond your control will SUCK you in!  You very easily can end up raising a family (grandkids) again, or worse yet raising your own kids again, plus their kids!  If you don't take this serious, check out the day care centers, pre-schools, and parks.  Take note of how many kids are there with their grand parents! 
May 12, 2014 6:57AM
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A retirement plan is comprised of variety of factors and one of them is medical or care expenses. As you grow older, you become weak and therefore vulnerable to diseases or conditions that will require long-term care. Without coverage such as Medicare or private insurance, you'll end up using all your retirement money. Never underestimate retirement costs because of inflation. You should make sure that you have the means to support your current lifestyle in the future and to have enough retirement income that can cover your future expenses. Many people tend to forget about these things, which gives them huge financial problems in the latter part of their lives. For a sound retirement plan you can use www.ltcoptions.com as one of your long term care resources.
May 10, 2014 5:54PM
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Its not supposed to be this FRIGGIN way. Healthcare for profit and share holder gains, is the most ludicrous system on the planet. Hide cash transfer assets and tell the Govt. and all the greedy institutions that you are poor. The only way to play the game.
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