Four Retirement Mistakes

Marketwatch lists four retirement mistakes older Americans make as follows:

1. Putting more of their money into risky assets than is prudent
2. Overspending
3. Not owning enough insurance
4. Not having enough inflation-indexed guaranteed income

My thoughts on these:

1. I think we've all seen what can happen to riskier investments like stocks, and if you have a ton in them close to retirement then you're taking big, big risks. Yes, you need some in riskier, higher potential investments because odds are you'll live 15 to 20 years in retirement, but that doesn't mean you need 80% of your portfolio in emerging market stocks.

2. Overspending is a problem at all times in your life and has a huge impact on most financial issues, not just retirement (though I agree that it can be especially damaging at retirement when future income is limited.)

3. The piece says this:

Given all that could and does wrong in retirement, Salisbury also says older Americans should buy more property, life, auto, disability, health and long-term care insurance. Self-insurance, says Salisbury, is a sure way to destroy your savings. Likewise, Laibson said Americans are not setting aside enough to pay for potential late-in-life health and long-term-care costs.

Ok, why is life insurance lumped in here? Once you get to the point where your estate can take care of your dependents, why do you need it? And once you stop working/earning an income, do you need disability insurance? I can see where you'll need the others throughout your life.

4. Inflation is the great, silent money killer. We all need to be fighting it throughout our lives. To me, this is just another reason to keep spending/lifestyles as low as possible.

Comments

[Donny Gamble]

Another retirement mistake that I would say is not putting at least 10% of your annual income into your retirement account. If you fail to do this, you will end up retiring later than expected.

[Tarah]

I can tell you why Life insurance is lumped in there. No matter what your age, you need a burial policy because it bypasses probate and comes to the beneficiary tax-free. Otherwise, your family is paying out of their pocket for your funeral, not from their inheritance. The only reason you shouldn't have life insurance is if you pre-pay your funeral.

On the other hand, you don't need disability insurance if you're retired. It wouldn't even pay out if you tried to claim on it because it goes into effect if you're out of a job.

Other than those things, I agree with this guy. It's a good idea to have safe investments that do better than inflation. It's a bad idea to over-spend. Self-insuring is a ticket to the poor house, especially in a Long-Term Care situation ($5000 per month is no joke, and that's on the low side for a Nursing Home).

[rxjohnk]

@Donny-
I'm 28, I'm not putting 10% into a retirement account, and I will be able to retire in 10 years. Dig deep and research all of your options, don't just drink the government Kool-aid. Also check out some of the discussion on this page on 401k's last month.

@FMF/Tarah-
Life insurance is a wonderful way to avoid the estate tax for large estates. If you are lucky enough to have a $10 million estate, You will pay almost $4 million in estate tax. If you use your $10 million to buy a life insurance policy with a face value of $10 million and hold it in an Irrevocable Life Insurance Trust, you will pass the full value of it on to your heirs/charity. Most people probably don't need it, but for the wealthy and future-wealthy that read FMF, keep this in mind!