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7 Pitfalls New Retirees Should Avoid

7 Pitfalls New Retirees Should Avoid

You said goodbye to your boss a year ago. You spend your days as you wish, retirement is sheer bliss. While you may be enjoying yourself, the question is how good a job are you doing with your money, now that there's no paycheck to cover a multitude of sins? There are more than a few ways to trip yourself up during the first year or two of retirement.

Here are few landmines to steer clear of.

Delay taking Social Security

If you have no other options than to tap Social Security as soon as you're eligible that's one thing, but the longer you delay getting money from Uncle Sam, the better. “Collecting too early is a mistake. Collecting at 62 mean a 25% reduction in benefits for the rest of your life. If you were born in 1943 or later, delaying until age 70 means an extra 8% 'bonus' for every year you wait,” explains Karen McIntyre, managing director and senior financial advisor for Wescott Financial Advisory Group.

Don't get too conservative

Realize that at this phase of your life when most likely there's more time behind you than in front of you, you can ill afford to lose your shirt with risky investments. However, it's about balance. “You don't want to get overly conservative with your investing. A 100% bond portfolio is NOT a risk free portfolio. We typically recommend 60% stocks, 40% bonds, or even 70/40, because the stock component provides the necessary long-term returns and inflation hedge that bonds don't have to ensure a comfortable retirement,” says David Edwards, president and portfolio manager of Herron Financial Group.

You could have a decade or two or more in retirement, you want investments that can withstand inflation and give you earning power for many years.

Hold off on touching your IRA

It's not unusual for people to prematurely withdraw from their IRA accounts. “We tell our clients to hold off drawing on IRA accounts as long as possible, preferably until age 70 ½, when they must withdraw,” says Edwards. He wants his clients to obtain tax free growth in those accounts for as long as possible. Meanwhile, money drawn from a taxable account may have a lower tax burden, he says. “To pay a client's draw we need to sell $100 stock with a cost basis of $50. The client will owe a 20% capital gain of $10, or a 10% tax hit. Any money withdrawn from an IRA account is taxable at up to 39.6%, plus state taxes,” he says.

Spend your investments carefully

The biggest mistake people make is spending too much from their portfolio early on, says Elle Kaplan, CEO of Lexion Capital Management. To determine how much you can safely spend each year, create a “retirement road map” that illuminates how you will navigate your remaining years each step of the way. “This road map should be an all-weather plan that takes into account a wide variety of market scenarios and economic conditions so that you are prepared for any situation. Plan as if your life expectancy is 100 and be sure to build in room for inevitable bumps in the road and the unexpected expenses they may bring.”

Get estate plan in order

At this stage of life, if you don't already have an estate plan, it's time to put one in place. “Actively discuss end of life decisions with loved ones. Let family know where documents are kept and who your advisers are,” says Frank Goins, client advisor, SunTrust Private Wealth Management.

Proper legal documents, such as a will, health care proxy, and power of attorney, can save a lot of money if someone becomes ill or passes away. “Have your documents in order, review them frequently and be sure they say what you want. Don't put a son who can manage money as the executor of your will or as your power of attorney because he is your son. If he can't manage his money, how do you think he will manage yours?” asks Annalee Leonard, president, Mainstay Financial Group.

Adjust spending

Not sticking to a budget in retirement will catch up to you much quicker than when you were employed and had the luxury of working over-time or collecting bonuses. “Being retired means having more free time, but that also means more time to spend money. You may need more money than you thought, especially if you want to travel,” says Mary Kelly, author of Money Smart. If you really can't afford all your new hobbies or to travel as you would like, figure out where else you can cut expenses, or determine whether you want to work part-time or freelance, or otherwise get extra cash for all your pursuits, let alone any unexpected expenses that can wreck your budget. Simply put, you can't spend like you did while you were working. Cutting back includes family, which is a big issue.

According to Merrill Lynch's recent study, Americans' Perspectives on New Retirement Realities and the Longevity Bonus, conducted in partnership with Age Wave, within many families, one or more individuals may be struggling financially. Balancing an individual or couple's retirement needs with the needs of parents, siblings and grandchildren is a growing and complicated challenge. In the survey, 52% of parents said they expect to provide their adult-age children with some form of ongoing support – be it financial, healthcare, housing or education and 35% believe they will need to support their grandchildren in such ways. “Remember the grandkids can borrow money for a home or for education. As a retiree, it's very tough to get a loan. Focus on funding your own retirement years,” says Kelly.

Don't miscalculate impact of moving

It seems smart to move or to downsize to a smaller house. “But if you're used to a 3,600 square foot home and move into 900 square feet you might find that you as a couple are getting in each other's way,” warns Kelly. Furthermore, moving to a new community, particularly if you don't know anyone there, could prove a major mistake. “Retirement communities often claim to be less expensive than staying in your own home, but with the rent, utilities and mandatory meal plans, it is often the same or more expensive. Why downsize into a place if it is not better for both of you?” says Kelly.

Don't underestimate the emotional impact if you move to a new location where you have no family or friends, worse still if you move so far that it's not convenient or is too costly for you or your loved ones to see each other frequently.

It's early days yet, so even if you've veered a bit from the best retirement path, it's not too late for a course correction.

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Shorebreak   |     |   Comment #1
"Get estate plan in order" is probably the only advice that I completely agree with. The remaining tidbits are subjective in nature. Individual wants, needs, health and comfort level need to be dialed-in to the equation of retirement.
Anonymous   |     |   Comment #2
Sheryl, are you write these articles to amuse or contradict yourself or just for fun?

Few articles back, you said to down size  your home to save money, now you are saying it may make you miserable, since you will be bumping into each other all day.
You also said in the previous articles to take SS as soon as you retire, now you are saying to delay until age 70  and to have 70% in stocks.
There numerous other discrepancies coming out of your posts that contradict each other from your previous suggestions, like now you are suggesting to work while collecting SS, whithout telling the people the negative impact.
I don’t know if other readers pay attentions to your posts, but I do and can testify to be true that you contradict your findings from post to post.
Anonymous   |     |   Comment #3
First item on the "Estate Plan" needs to be "get the Bernanke(s) out of the FED".  Everytime he speaks, the stock market, bond market, etc. are sent in a uproar.  No one, except the 1% can plan anymore.

Anonymous   |     |   Comment #4
Around four of every ten 70-year-old claimants will be gone by 81, about the age Social Security says they'll break even, not to mention other unpredictable considerations like taxation, the effects of RMD's, inflation, investment returns, changes in benefit structure., and so on. And foolish pundits always seem to ignore the intangible, and maybe even more important, advantage of having extra money in your sixties or gaming the system to max the take in your eighties and beyond.
Anonymous   |     |   Comment #5
If you depend on your SS as sole income for retirment, none of your post apply.
Anonymous   |     |   Comment #6
not usre how much to believe in when the follwoing is suggested. 

We typically recommend 60% stocks, 40% bonds, or even 70/40,


wow. 70/40  are you suggesting investing more money than you have?

Anonymous   |     |   Comment #7
A delay in taking Social Security benefits seems bad advice for many individuals, especially older males. My recollection of the penalty for taking an early benefit vs. delaying taking the benefit, is that the penalty when taking an early benefit is a very small, percentage-wise of the ultimate benefit. Life expectancies for males being what they are, and, given, as I believe, that, the benefit would not be somerthing that could be inherited, the winner of some individuals not taking an early Social Security benefit would be Uncle Sam.
Anonymous   |     |   Comment #8
It is predicted that most of us will eventually have Alzheimers or memory problems to such an extent that we won't even know where we are, much less if our mix is 60/40, so I say spend responsibly while you can, and leave any leftovers to your heirs or favorite causes.
outtempster   |     |   Comment #9
oh my, "We typically recommend 60% stocks, 40% bonds, or even 70/40". (probably 70/30"). Well, if you can afford to lose half of that 60% or 70%, then go for it. So many people got hit in 2008. I know several folks who just retired, then had to try to find some kind job because their retirement fund tanked almost in half. It's OK when you are working, but for retirees who need all their retirement account money, I seriously doulbt this 60/40, 70/30 approach.
51hh   |     |   Comment #10
The portfolio allocation and when to take social security benefit are two issues of heated arguments. 

60% equity/40% fixed (note: no bonds please) or even 70% equity/30% fixed are definitely not for everyone.  This is what the bankers and financial planners would like you to invest.  If one has $3M with a 70% equity allocation, that is $2M in equity.  Think of a daily up/down with mutual funds or index funds, say 1.5% downward, that is a daily loss of $30K.  Of course one can gain the equal amount.  But who can take the ( -) daily fluctuation.  My point is if one has enough money to retire, a 0% equity may be ok.  It is risk tolerance/time horizon dependent.  There is never a set rule-of-thumb percentage, it is a case-by-case, person-by-person consideration.

As for social security, it is again to each her/his own.  People have to be really dumb to listen to all those silly arguments on taking social security at 70.  I think those promoters work for the social security office.  Give us a break and let us decide on when to take our social secuirty with our own considerations. 
51hh   |     |   Comment #11
Correction to above post: who can take the plus/minus 30K daily fluctuation...
moneysaver   |     |   Comment #12
"Don't put a son who CAN manage money as the executor of your will or as your power of attorney because he is your son. If he can't manage his money, how do you think he will manage yours?” asks Annalee Leonard, president, Mainstay Financial Group."

I think the author meant to say CAN'T...

Meanwhile, I think a lot of the advice listed above is over-simplified and generalized. A lot of things depend on each individual's circumstances, such as whether they do or don't have a defined benefit pension in addition to their potential Social Security and retirement fund earnings.

What I would have found more helpful was a discussion about the relative merits, once you've reached retirement age, of beginning to pull funds from one's retirement accounts (IRA/Roth) vs not taking from those funds and beginning Social Security instead.

damfino   |     |   Comment #13
I think the volume and nature of comments speaks loudly. This writer consistently provides superficial, poorly written drivel. Is this her personal puff-blog? Why in the world is she "writing" here?
Anonymous   |     |   Comment #15
#13 Sheryl Nance-Nash is writing articles for Ken because she,  from her credits,  is a "freelance writer specializing in personal finance" etc. etc.  Evidently Ken thinks she is qualified to write these articles even if everyone doesn't agree with all of her information.  Do you agree with all of the info other finance writers post?  The thing about finance is that it is mainly up to personal choice and no one I know can see into the future and really tell us what is going to happen or what the consequences will be from a choice we make.  I do not agree with or follow all of what Sheryl has posted because I make my own choices and do my own research.  To those who don't she at least is giving some ideas for them to use or not use.  I still enjoy reading these articles from Sheryl and others because sometimes I spot something I may have forgotten and they are good reminders to keep me on my financial toes.
ecl   |     |   Comment #14
These are not pitfalls to avoid--they are rules to follow.  Anyone reading this quickly will end up thinking, for example, that delaying Social Security is a pitfall to avoid!!
Anonymous   |     |   Comment #16
To Anonymous - #15,

Would you hire Sheryl to be your estate planner?

If not, then stop supporting her narrow minded and contradictional point of views.

If yes, then please find another blog to advertise her.
Anonymous   |     |   Comment #17
#16:  Since when is it advertising to give you my opinion as to why she is allowed to write her articles?  I don't need Sheryl or anyone else to be my estate planner so your question is mute.  If you feel so vocal against her article why don't you share your concerns with Ken.
Anonymous   |     |   Comment #18
In rising markets, investors overestimate their risk-tolerance and so-called "experts" comply. When the market tanks, and the fervor subsides, "recommended" stock allocations usually decline.
Anonymous   |     |   Comment #19
Hi Anonymous - #17,

I happen to lean on the side of the people who say, Sheryl is bad influence on all of us.
She write and write and she quotes and quotes somebody else’s idea, which by the way they contain contradictions and misleading “facts” in every of her posts.
If there is any new and educational article of hers, I’m all for it, to read, listen and implement, however, that has not happened here in the last 6 months, since I started to come here and read hers articles and posts.
If you are looking to humor yourself, read hers articles, otherwise you may become dumber following her around.
Anonymous   |     |   Comment #20
#19:  Unlike yourself, I have enough respect for Ken to think he allows Sheryl's articles because he feels we are all adults who can make our own decisions as to what we believe and don't believe in any of the articles or posts on "his" forum and blog.  No matter what you personally think of Sheryl's article, since you are using "Ken's" website, I would think you would have the decency to NOT keep pointing out any problems you find with her article. 

I assure you if I am to become dumber, it would certainly be by reading your posts more than reading Sheryl's article.   Now please give it a rest.
Roush   |     |   Comment #21
Hey #20 - Settle down dude, take a smoke break or something, you are taking all of this way to seriously. If someone has a different opinion than yours, it's all good...it's their right, you know? No need to try to toot Ken's horn at someone elses expense, he can well take care of himself and has been here way longer that you. Now, go on your way and have a good day, OK?
Anonymous   |     |   Comment #22
#21  No, it's not OK, by Ken's posting rules, to treat our fellow posters in such a negative manner.  Disagreeing with a post is quite different from what was said about Sheryl's article. It went beyond criticism. I don't smoke so you have a smoke and read the posting rules while you are relaxing.  Now I am done with this so have a good day.
Anonymous   |     |   Comment #23
Anonymous - #22, stop defending Sheryl and being hers devil advocate.
The readers are much smarter here and can see through the low level articles
she writes and copies and pastes from New York papers articles.
I for one, pay little attention to her writing, because there is nothing a normal person does not know about them. The problem is the content of her writing, is full of contradictions and the common sense is lost somewhere in her posts.
Ken has nothing to do with it and we all know it, he is a great guy and I like this web site a lot and visit it as often as I can.

Thanks for reading it, Mark
Anonymous   |     |   Comment #24
I agree with #4 and with other posters here.  It's nuts to wait until age 70 to collect SS.  I waited until I was 65 and that was probably also a stupid error.  Sure you receive more money at age 70.  But those are "inflato-dollars" they are paying you . . if you're still alive to receive them at all.

Not only is a bird in the hand worth two when you are 70.  The birds in hand at an earlier age BUY more, too!!  Only fools wait until they are 70.


If both your mother and dad lived to be 100, ignore this post!!

Anonymous   |     |   Comment #25
According to the website, you can use feedback@depositaccounts.com to voice your concerns about the writer of this piece.