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Golden Mistakes
Now in your 60s, you’ve dedicated years to hard work, saving, and preparing for what lies ahead. Though you no longer need to hustle relentlessly, it remains essential to handle your finances with caution and foresight.
As you enter your 60s, safeguarding your assets becomes crucial to ensure a secure future. Here are the 10 biggest financial pitfalls to avoid during this pivotal decade.
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Withdrawing Funds from Your Retirement Account
One frequent error that retirees often commit is withdrawing the entire balance of their retirement accounts, cashing it out, and depositing the funds into a bank account. This approach can lead to tax liabilities on the withdrawn amount. It’s advisable to take out only what is necessary for living expenses rather than the total amount available.
Withdrawing from your retirement fund means pulling your money out of the stock market, where it has the potential to continue growing. As a result, you might find yourself lacking sufficient funds to meet your future expenses.
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Avoiding Stock Investments
A common misconception among seniors is that they should exclusively focus on low-risk investments. However, this isn't entirely accurate. It's important to maintain a portion of your portfolio in stocks and equity securities.
A prudent option would be to invest in a total stock market index fund that mirrors the overall market performance. This approach allows for diverse exposure while avoiding concentration in a single sector. A common guideline suggests that the percentage of your portfolio allocated to stocks should equal 100 minus your age. For instance, at the age of 65, it would be advisable to keep 35% of your investments in stocks and stock-related funds.
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Assisting Your Kids
For a parent, few things are more rewarding than assisting their children. However, this support can occasionally come at the expense of their own financial stability.
A frequent error that many seniors commit is overextending their finances by providing excessive monetary support to their children. This could involve covering college tuition, purchasing a new vehicle for them, or maintaining financial assistance even after they finish high school. It's important to keep in mind that while your children can secure loans to achieve their aspirations, you cannot borrow money for your retirement needs.
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Claiming Social Security Benefits Prematurely
If you take Social Security before the age of 66, you could wind up forfeiting thousands of dollars a year. If you anticipate living a long time, then your best bet is to delay taking Social Security for as long as possible. For each year that you delay past your normal benefits age, you’ll earn an extra 24% maximum. That's a guaranteed return that’s hard to beat.
If relying on Social Security makes it challenging for you to retire comfortably, it might be wise to continue working. This could be an effective strategy to enhance your savings for retirement.
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Failing to Select the Appropriate Medicare Plan
Medicare plans can differ significantly, and selecting an inappropriate one may lead to higher medical expenses than needed. It's essential to carefully consider the advantages and disadvantages when deciding on a Medicare plan.
Additionally, failing to select a Medicare plan during the designated enrollment period may result in increased premiums and a penalty for late enrollment.
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Neglecting to Draft a Will
No one likes to think about death. However, avoiding the subject can be costly. If you don’t create a will, then your assets will have to go through probate. This is a time-intensive process that can delay how long it takes your heirs to receive the money and property you’ve set aside for them. Having a will also means your heirs will not have to spend as much on a lawyer.
Failing to create a will can result in significant family conflict once you're no longer around. It’s wise to communicate your desires regularly and in advance, ensuring that everyone is aware of your intentions.
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Deciding Against Selling Your Property
Reevaluating your housing situation as you approach 60 doesn't necessarily mean you have to move to a smaller home right away. However, it may be wise to start thinking about your future needs. Homes with multiple levels can become challenging to navigate as you age, and you probably won't require more than a few bedrooms. Making the decision to downsize now could also provide you with additional savings for your retirement.
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Disregarding Your Credit Score
When you’re a senior, you may not be making a lot of major purchases. However, that doesn't mean you should stop caring about your credit score.
For instance, if you're looking to purchase a car, you might consider applying for an auto loan. In that case, having a good credit score will be essential.
The positive aspect is that keeping a healthy credit score doesn't require extensive effort. The key elements to focus on are ensuring your bills are paid punctually and avoiding excessive use of your credit card limit.
If you have concerns about identity theft, consider placing a freeze on your credit. This process involves contacting each of the three major credit bureaus—Equifax, TransUnion, and Experian—and requesting a freeze on your credit profile.
By freezing your credit, you prevent anyone from being able to open a new credit account using your identity.
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Falling Victim to Scams
Every year, thousands of seniors lose tens of thousands of dollars to scams. This is a common way to erase your nest egg without meaning to.
To reduce the risk of falling for scams, consider implementing protective measures such as installing firewalls on your computer or using voice identification on your smartphone.
Additionally, avoid answering phone calls from unfamiliar numbers; if it's significant, the caller will likely leave a voicemail. If you have kids, encourage them to let you know if they notice anything suspicious in their emails.
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Neglecting to Update Your Budget
Regardless of whether you retire due to financial stability or because your health no longer allows you to continue working, revisiting your budget is essential. As you age, your financial requirements evolve, making it important to assess your expenses against your income. Take the time to review your bank and credit card statements to evaluate your actual spending in relation to what you can sustain.
Reviewing your expenses could lead you to the conclusion that having an additional source of income is essential, even if it’s just a part-time position.
This article was originally published on Cheapism
