Maximize Money as You Age
It is common knowledge that as we grow old, our bodies tend to not work as well. Some folks begin having physical challenges, some have cognitive issues and some have both. But what we don‚Äôt know is which, if any, of those challenges we will face. Worse yet, those who fall into cognitive decline often do not have the ability to recognize it.
The lesson here is to prepare for the unknown. If you‚Äôve worked with financial advisors throughout your career, it‚Äôs a good idea to narrow your resources to one or two trusted people‚Äîpossibly including a family member. That way, if and when you need help managing your finances, you‚Äôll have a loved one who can help recognize when it‚Äôs time for you to relinquish control of the reins‚Äîand an expert to help take over.
The following are some common areas in which seniors make mistakes that could impact their future financial security.
Draw Social Security Too Early
Many of today‚Äôs current retirees started drawing Social Security at the earliest possible age of 62. This might have been due to a layoff, health issues or simply because they retired and needed to turn on the income stream. However, the earlier you start drawing benefits, the lower the payout‚Äîand this payout level is locked in for life (with the exception of periodic cost-of-living adjustments). It also locks in the amount a surviving spouse‚Äîwhose benefit is derived from your earnings‚Äîwill receive when you pass away. Waiting as long as you can before starting Social Security allows your benefits to accrue higher.
Spend Assets Too Soon
Once you retire, it‚Äôs important to create a household budget for regular and ad hoc expenses each year. Then, subtract the amount of Social Security and any pension benefits you (and your spouse) will receive to estimate how much you‚Äôll need to withdraw from your savings and investments each year. One of the most common mistakes is withdrawing too much of these assets early on in retirement and then running out of funds.
When you turn age 70¬Ω, you will to make Required Minimum Distributions (RMDs) on all tax-deferred 401k and IRA accounts, even if you don‚Äôt need the money. Each year your brokerage will send you a notice indicating the withdrawal amount. You‚Äôll need to make that withdrawal before the end of the calendar year and pay any taxes due on your return for that year. Any RMDs you do not withdraw will be subject to a 50 percent penalty. Remembering to take RMDs as a young retiree might be easy, but you should have a plan for someone to continue making these withdrawals on your behalf should you forget to in old age.
Cancel Life Insurance
Many couples stop paying for life insurance once their children are grown. However, consider how much your household income would be impacted should one of you die first. Would the elimination of a regular pension and/or Social Security benefit check impact your loved ones‚Äô lifestyle or financial security? Consider purchasing life insurance for one or both spouses to help ensure that there is enough money for the survivor‚Äôs lifetime.
Chat With Strangers
Elder financial fraud is big business. Each year, $37 billion is fraudulently taken from seniors‚Äîoften willingly given. Because many seniors live alone, they are more susceptible to chatting on the phone with a friendly caller, who uses this to their advantage. It‚Äôs a good idea to never respond to phone calls you receive from marketers or unsolicited offers from unfamiliar companies.
Keep Information in Different Places
The wider the range of your savings and investment accounts, the harder it is to look after them when you get older. Consider consolidating accounts into as few as possible, such as combining checking and savings accounts into a single bank and transferring¬†investments to one investment firm.
Pay Bills By Hand
Stop paying your bills every month; have your bank pay them automatically. Enter all regular payors and authorize your bank to pay them from your bank account automatically. Also, get some help monitoring this process. As you get older, you‚Äôll want someone helping sort through your mail on a regular basis to address periodic bills like homeowner‚Äôs insurance and your property tax bill.