Seniors’ Top $$ Mistakes

Nothing guarantees you sufficient money to cover all possible costs in retirement, but you can steer clear of some common mistakes as you enter your golden years.

We most often see these mistakes from seniors:

Falling for fraud. Scammers love older adults. The Federal Bureau of Investigation lists a few tips on types of fraud, including red-flag pitches and information you should always demand in many kinds of transactions.

Misunderstanding Medicare. Gaps in coverage may exist even after you qualify for Medicare. For instance, the federal government health insurance 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); you pay a monthly premium if you worked and paid taxes for less.

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 overweighted in bonds and cash might not generate enough long-term income from your portfolio, which needs to align with your savings goals, needs and appetite for risk.

We also see some retirees not factor inflation’s effects into financial plans.

Underestimating big expenses. Amid skyrocketing health-care costs unprecedented in their lifetimes, some seniors also underestimate the dollar price of a serious illness.

Another common mistake: assuming you’ll be able to afford your large house or home in an expensive area forever. You might be able to handle the costs of upkeep and other expenses of your home now, but compound the cost over 30 to 40 years to see if you can sustain it.

Not planning for potential incapacity. While you probably do have estate planning documents, such as a will, outlining how you want your property handled after your death, have you documented how you want health-care and property decisions made if you become incapacitated from illness or injury?

Two documents to consider: a power of attorney so someone can handle your financial affairs; and a health-care proxy, someone you can empower to authorize or decline your medical procedures if you can no longer make those decisions.

Having too much in tax-deferred accounts. You probably use such tax-deferred vehicles as a traditional individual retirement account to save for your golden years. The theory: You get a tax break when you contribute to the IRA and, later, pay less tax on the withdrawals (aka required minimum distributions, or RMDs) because in retirement you’re supposedly in a lower tax bracket.

The goof: Some of these folks actually enter a higher tax bracket after working, negating any advantage to these accounts.

Drawing from retirement accounts too soon. Again, bear in mind your financial situation and tax bracket. Withdrawing money from your retirement accounts too soon or too late (see above) can hurt your savings.

You generally have to start withdrawals from your IRA or retirement account when you reach age 70½. Says the Internal Revenue Service, “You cannot keep retirement funds in your account indefinitely … If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.”

Becoming the family bank. Many seniors want to help children or grandkids financially. We’ve also seen extreme examples of gifting that proved detrimental to financial plans.

Doing no due diligence. Research financial providers before investing anything with nice people at the bank.

You can verify planner credentials with the Certified Financial Planner Board of Standards and accountant credentials with the American Institute of Certified Public Accountants.

Ignoring Roth IRA-conversion opportunities. A post-retirement conversion to a Roth IRA may make sense, given longer life expectancies.

You pay no income tax on withdrawals from a Roth, though you must be at least age 59½ when you begin taking RMDs and been in the plan for at least five years. One big plus: Roth IRAs do not require RMDs at any age.

Check your tax bracket and assessing also the amount of the conversion. Under IRS rules, the tax deduction on your contribution and conversion among depends on the status you use to file your tax return and on whether your annual income exceeds certain limits.

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 means more money may be available later in your life.

And for many of you seniors, there’s a lot more life left than you expect.

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Tom Orecchio, CFA, CFP, ChFC, CLU, AIF, is a principal and wealth manager of Modera Wealth Management LLC in Westwood, N.J.

Nothing contained in this article should be construed as personalized investment, financial planning, legal, tax, accounting or other advice, and there is no guarantee that the views and opinions expressed herein will come to pass. Investing involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be construed as a solicitation to buy or sell any security or engage in any particular investment strategy.

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