8 baby-boomer money mistakes to avoid

This guest post comes from Mr. ToughMoneyLove at Tough Money Love.

Baby boomers have been receiving a lot of criticism in recent months for their collective contributions to our country's economic problems.

First, we are blamed for an extreme amount of debt-driven consumption that inflated highly leveraged real estate and credit bubbles. Second, we are now being blamed for an excess of saving when many so-called economic experts are calling for increased consumer spending. In general, boomers are probably guilty on both counts.  

• Bing: Who is blaming the baby boomers?
  

I have a suggestion.

Instead of wasting energy hurling insults at financially irresponsible baby boomers, why don't we make a list of all the money mistakes that were made by the boomer generation? The younger folks can read the list and then pledge "never again." I hereby volunteer to start the list of boomer mistakes. Here we go:

Assuming that what goes up will continue to go up. This seems like one of those "duh" lessons that should not need to be taught. Apparently not, because boomers bought homes -- upsized McMansions even -- during the go-go years, often using highly leveraged, unconventional loan products. The premise was that this was a low-risk activity because equity would be built from continued real estate appreciation. Not.

Using home equity as a primary retirement nest egg. For many boomers who used this plan -- Californians in particular -- that nest egg is now an egg shell, empty and cracked. Homes are not investments except to the extent they are paid for and providing you tax-free shelter services.

Failing to diversify. This is related to mistake No. 2 but further includes being inattentive to proper allocation of investments into non-correlated asset classes. This takes study and thought, two financial-planning characteristics in short supply among my fellow baby boomers. We have been oblivious to risk or were busy chasing yields from the hottest funds, or both.

Ignoring life expectancy. Yes, it's hard to believe that a generation of mostly overweight and out of shape Americans can be guilty of forgetting how long they will live, but it's true. Perhaps the best evidence is how abruptly and massively boomers pulled money out of the markets in response to negative conditions. "Sell low," we cried, forgetting that our investment horizon still spanned 20 to 30 years. A lot of us think those stable value funds and CDs will sustain us until the end. Maybe so, if we plan on living in a van down by the river.

Sacrificing retirement for our children. So often I have read about boomer parents maxing out a HELOC or borrowing from retirement accounts to pay college tuition or to send adult children extra living money. ("Gee, Mom and Dad, I just have to live in Manhattan. Don't make me move just because I have negative cash flow.") You didn't sign up for that obligation. If you can afford to help the spoiled little darlings, go ahead. Just don't get guilted into it. If you do, make sure you are prepared to turn the tables on your kids when you are old and broke.

Addiction to stuff. Take a poll of baby boomers you know. I will bet that most will tell you that one of their immediate goals is to simplify their lives, including shedding themselves of a lot of the "stuff" they accumulated over the years. Wouldn't it be nice if we could figure out that stuff is more trouble than it's worth before we acquire it all? Now that you know how you will feel about it later (because I told you), you can implement stuff-avoidance strategies now.

Working for money. Don't start making faces at me. I know we need money, and work is what generally provides it. But there is that old work-life balance thing that baby boomers still haven't figured out. The trick is to maintain control of the outgo ledger so that you have choices on the income ledger. Once you become accustomed to car payments and such, you are at risk of being stuck in a work life of quiet desperation, waiting for weekends and vacations that come and go but never satisfy.

Marriage recycling. I will be the first to acknowledge that Mr. ToughMoneyLove is not a relationship expert. In fact, just the opposite is probably true. I have to credit Mrs. ToughMoneyLove for keeping me around for 31 years. But money experts will tell you that one of the worst financial disasters a person can experience is a divorce. The older you are, the worse it is. So do what so many boomers have not. First, choose wisely. (As I used to tell our sons, when evaluating a woman as a life partner, be sure you are thinking with the correct body part.) Then work hard to maintain that marriage. Your spouse and your net worth will love you for it.

I think these eight baby-boomer money mistakes are a good start. What can you add to the list?

Related reading from Mr. ToughMoneyLove:

• Benefits of a preretirement vacation home 
• I'm still counting on Social Security -- How about you? 
• Charting a path to renewed frugality