5 big financial mistakes to avoid at 60
You’ve worked hard all your adult life and are finally approaching retirement. The prospect of having more time to relax and enjoy yourself is exciting, but you’ll need money to do it.
As your best working years come to an end and you prepare to leave the workforce, it’s important to make wise financial decisions that will protect your nest egg. It only takes one bad financial choice to jeopardize your plans – and your financial stability – so take the time to make informed decisions.
When you have a large sum of money, it can be tempting to share it with loved ones – such as your children – or to treat yourself to luxury items. However, that money must last your entire retirement, which can span several decades.
Collecting Social Security benefits too early
Many people make the mistake of taking Social Security income as soon as they can, because it’s available. Others start early because they are afraid the system will run out of money. Neither approach is the best way to maximize benefits.
“You get more each month if you wait until your full retirement age, and you can even get increases after that – amounting to about 8 percent a year until age 70,” said Justin Pritchard, CFP, founder of Approach Financial, Inc. in Montrose, Colo.
Having patience can literally pay off.
“Instead of claiming as soon as possible, do some calculations to determine how much you will earn if you wait,” he said. “Remember that the surviving spouse who takes over your benefit will be affected by your decision, so choose carefully.”
Cashing out a retirement account
When you retire, you may have the option of keeping your retirement savings with your employer or transferring the money to a retirement account – that is, an IRA – in your name.
“You don’t have to cash out the entire account and put that money in the bank,” Prichard said. “If you do, 100 percent of your nest egg can become taxable income, resulting in high tax rates and possibly underpayment penalties.”
Avoid diminishing the value of your retirement account by making informed decisions.
“Instead of cashing out, consider moving those funds into an IRA,” he said. “From there, you can withdraw exactly what you need in increments. You can set up a monthly income stream, or make withdrawals as major expenses occur.”
Ignoring Healthcare Expenses
If you’ve had an employer-sponsored health care plan during your working life, it’s likely that you haven’t appreciated the true cost of health insurance premiums
“You may be in for a shock, especially if you retire before age 65 and have to purchase a policy from a private insurer,” Prichard said. “Do some research on health care expenses well before you leave your job. You may have options, such as continuing benefits under COBRA or a state program for 18 months.”
By covering all the bases, you’ll be prepared for the health care expenses you’ll face in retirement.
“Even when it’s time for Medicare, you need to know roughly what to expect,” he added.
Give your children their inheritance sooner
If your adult children need extra cash, it may be tempting to give them at least some of their inheritance now, while you’re still alive. You might consider this a good idea because they’ll eventually get the money anyway, but think again.
In many cases, children who ask for an advance on their inheritance are not in the best position to manage their finances. As a result, they may come to you in the future needing more money, which could ultimately exceed the amount you planned to leave them.
“They should get what’s left over after you use your own retirement savings to enjoy your golden years,” said Mark D. Kinsella, CFP, founder of Family Financial Planning Services, LLC. in Wheaton, Ill. “Keep the money and use it for your needs – fun, travel, emergency funds, insurance, investments, etc.”
Buy an expensive new car
It’s important to enjoy your golden years, but you don’t need a fancy car to do so. Kinsella says he’s seen many people kick off their retirement by buying a new luxury car, thinking it will be the last vehicle they buy.
“You’re going to need a number of cars in retirement,” he said. “Put the money in moderate-growth investments, so you’ll have it when you need to buy another car.”