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Ten Financial Mistakes Seniors Should Avoid
By Robert A. Sagar
ROCKVILLE CENTRE, N.Y. - Investing your money has never been more complex. It is no secret that economic uncertainty, stock market volatility, mounting corporate scandals and threats to world peace have left people at or near retirement, looking for safe investment opportunities.
Concern for safety and security has always been characteristic of seniors, who place an increased priority on the preservation of assets. In the wake of September 11 and continuous stock market fluctuations, the popularity of so-called "safe-money" investments has skyrocketed. But what is "safe"?
Banks have always provided the "safe money" alternative. However, with interest rates reaching a 40-year low and the average yield of a one-year CD at below 2 percent, many seniors and baby boomers are protecting their money in traditional fixed annuities and in the rapidly growing sub-category called equity indexed annuities.
Insurance companies issue these annuities in return for your payment or "premium" and guarantee the return of your money at a future date or over a period of time. Only an annuity can pay you an income that can be guaranteed for a lifetime. Often annuities are purchased for retirement income, but not always. Overall, fixed annuity sales continue to grow each year. Sales of fixed annuities more than tripled between 1998 and 2002, reaching over $100 billion last year.
Taking advantage of "safe money" investments is only part of the financial challenge faced by seniors today. The bigger obstacle in preserving precious retirement assets is not squandering them through common financial blunders. The good news is these mistakes are completely avoidable. The ten most common mistakes that seniors make with their finances -- again and again - include:
Ten Financial Mistakes
- Not making the most of existing capital. - Working capital is not working. Is it increasing income? Reducing taxes? Available when you need it the most? Is there a strategy for how to spend the "last dime on the last day?"
- Having too many eggs in one basket. - There's no reason to have all your money in one investment. Variety is a good thing, it's the difference between losing a little and losing it all.
- Holding property title jointly. - You can be held responsible for anyone a contract includes. So if the joint party violates the contract -- guess who will be held liable?
- Not understanding bonds, especially inflation factors, liquidation impacts and interest fluctuations. - Unfortunately what appears to be a good investment today, might not 10 years down the road. Consider all these factors, because they have a direct impact on value.
- Paying too much in taxes. -- This comes from not understanding taxes, and not just income taxes. There are a number of other taxes, or tax related issues that can reduce retirement assets including estate taxes, Social Security and IRA pension disbursements, to name a few.
- Failure to protect assets from such things as estate taxes, probate, or catastrophic health problems. - It can be hard to think about unforeseen problems, but it's vital. People can prepare themselves by obtaining the proper insurance and being financially ready for the unexpected.
- Not having a realistic long-term healthcare plan. -- Failure to plan for healthcare catastrophes or the financial impacts of home care, nursing home costs, Medicare and Medicaid.
- Paying unnecessary investment fees that reduce investment savings. -- Unnecessary commissions on investments that diminish value are a waste of money.
- Procrastination. - The earlier people start planning for retirement, the easier it will be.
- Planning your vacation rather than planning your estate. - It's amazing how quick people are to plan a vacation and how long people can put off estate planning. It's essential, and unfortunately too often -- too late.
These mistakes can be made by anyone, but the negative impacts are particularly severe for seniors. People at or near retirement typically have more to lose and less time to correct negative impacts. Fortunately, it's never too late. Restoration of retirement funds can happen. But before making any investment decisions, consult with a qualified financial advisor experienced in the particular needs of seniors. He or she can help you make the best decisions for your financial situation during today's volatile market, so your money is still there when you need it.
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