Retirement is no fun when you’ve got a broken nest egg.
Financial missteps can ruin your retirement hopes and dreams. But don’t despair. What gets broken can often be fixed.
Here are financial fixes for some of the most common mistakes that people make as they near retirement or when they retire:
1. You don’t know when to claim Social Security benefits
The age at which you begin receiving Social Security retirement benefits is a major factor in the size of your checks. So, take time to educate yourself before making this decision. Read articles from reputable sources and consider buying a customized analysis from a service like Social Security Choices.
There is no one-size-fits-all answer here. The best time for you to claim Social Security depends on multiple personal factors, from your financial circumstances to your marital status.
For example, Michele Clark, a certified financial planner at Clark Hourly Financial Planning and Investment Management in Missouri, recommends couples delay at least one of their Social Security checks to let the size of that benefit grow as much as possible.
She tells Money Talks News:
“When one person passes away, the smaller check of the household will stop and only the larger check will continue, which means the household loses an entire Social Security check. To help prepare for this, letting one check grow as much as possible will help offset the sting of losing an entire source of income when one spouse passes away.”
2. You started saving late
Don’t worry: There are things you can do to catch up on savings.
Andy Tilp, a certified financial planner at Trillium Valley Financial Planning in Oregon, advises people who are 50 or older to start by making catch-up contributions to tax-advantaged retirement accounts.
For tax year 2018, for example, someone who is 50 or older can deposit up to $6,000 more in a workplace retirement plan like a 401(k) — for a total of up to $24,500 — compared with younger workers. The catch-up amount for individual retirement accounts (IRAs) is $1,000 — for a total of $6,500.
Margot Dorn, a certified financial planner with Dorn Financial in California, also recommends that you consider:
- Investing in a taxable brokerage account: Just be sure to first make the most of tax-advantaged accounts.
- Moving to a more affordable state: This isn’t for everyone, but moving for retirement can significantly lower living expenses for some people.
- Getting a reverse mortgage: This route to freeing up funds has its downsides, but it can help eligible retirees who do not want to bequeath their home to heirs.
3. All your money is in one place
Keeping all your funds in one spot risks all your hard-earned money. To reduce this risk, diversify your retirement portfolio.
The main way to do this is to distribute your savings across multiple types of assets, such as stocks, bonds and cash.
How much of your money should you put in each asset type? Money Talks News founder Stacy Johnson offers a simple rule of thumb in “Ask Stacy: How Can I Know I’ll Have Enough to Retire?“:
- Step 1: Subtract your age from 100 and put the result as a percentage of your savings into stocks.
- Step 2: Divide what’s left equally between bonds and cash.
So, if you’re 60, you’d have 40 percent of your retirement savings in stocks, 30 percent in bonds and 30 percent in cash.
You can also diversify within an asset type. For example, when it comes to stocks, shares of mutual funds offer far more diversification than shares of a single company.