5 Big-League Mistakes of the Newly Retired


Some errors are inevitable, but these, you can't afford to make.


For about two years now, a class-action lawsuit has been ongoing in court, with minor league baseball players trying to get back pay based on federal and state minimum wage and overtime laws. That's because most minor league baseball players earn well below the federal poverty line.


That might be helpful to remember if you're retiring soon, and you think of yourself as a major league baseball player. The last thing you want is to be sent back to the minors.


But you could find yourself feeling as if you went from the good life to the poor life as quickly as a fastball, if you aren't careful. To stay far away from that poverty line, take the advice from those who see these errors being made all the time among the newly retired.

Changing your lifestyle in a rush. Warren Ward, a certified financial planner who owns WWA Planning & Investments in Columbus, Indiana, sees a lot of retirees making the transition from their old life to something new far faster than advisable.

He says that you may be tempted to move closer to the grandkids, buy a place at the beach or purchase a large RV and start seeing the country, and that's fine, but too many people dash into that without a realistic budget, Ward says.

"We encourage all people who go through a significant life transition to stop, catch their breath and move very slowly on large decisions. As a general rule, we ask them to wait a year before making a major change," he says.

A year, after all, will at least give you a chance to experience your life with your new, presumably less robust stream of income – and avoid making another big blunder. Like this one ...

Not planning for the unexpected. It's smart to have a plan for your retirement, but too many retirees don't plan to have their life upended, says Steve Casto, president of Retirement Matters, a retirement planning firm in Omaha, Nebraska, and author of the book, "Is Your Retirement Heading in the Right Direction?"

Casto points out that a number of things might happen in your life. Somebody close to you, like an aging parent or a spouse, could get sick and impact your finances in some way. You could get sick. Your child or an aging parent might move back into your home.

"I've found that most people do a good job of planning for the expected but most don't plan for the unexpected," he says. "Which makes sense. How do you plan for something that isn't even on your radar?"

Loaning money to your kids. Paul Ferrigno, who owns Ferrigno Financial, a retirement planning firm in Washingtonville, New York, sees this frequently. Often, he says, newly retired parents will lend their retirement money to children, who are either starting a business or are simply overwhelmed by their own expenses.

"This can have dire consequences down the road," Ferrigno warns. "Instead of seeking sound professional advice, they act impulsively without looking at the potential long-term ramifications."

The hope is generally that the money will someday be returned with interest.

"Sadly, it rarely works out this way," he says.

And if you do decide to lend money to your kids, be sure to discuss this with your spouse beforehand if you're married, since lack of communication is yet another mistake many new retirees make.

Not talking to your spouse about how you each imagine life in retirement. Have you two talked about how you're going to manage your money? Or what you'll both be doing with your free time?

Too many retired couples don't talk about these things, according to Lauren Klein, owner of Klein Financial Advisors, Inc. in Newport Beach, California.

"I have one client who told me that after her husband retired, she realized that whenever she came home and saw his car in the driveway, she would cringe. That's not a happy retirement for anyone," she says.

Klein adds that the solution to this sort of problem is what you would expect: Communicate with your spouse.

"If your expectations aren't aligned, and they rarely are, work together to find common ground," Klein says. And if you can't, she suggests getting help from a professional.

Talking to a professional, like a financial advisor, could also keep you from making one of the biggest blunders of all (next).

aking Social Security benefits too early. This is a big one. If at all possible, you want to wait until your full retirement age and not take your Social Security benefits early, says David Hryck, a tax attorney with the New York City-based law firm Reed Smith.

You're eligible to take out benefits at age 62, but they'll be reduced benefits, he says.

In fact, according to the Social Security Administration, your monthly benefit amount will be reduced by about 30 percent. As for your full retirement age, it's 65 to 67, depending when you were born. For those born before 1943, it's 65. If you were born between 1943 and 1954, your retirement age is 66. If you were born in 1960 or later, your full retirement age is 67.

"Everyone's situation is different, but every person needs to weigh the pros and cons of delaying versus acting early," Hryck says.

And a fatter Social Security check means it's even likely you'll avoid striking out when it comes to this last piece of advice.

Being too conservative with your investments. You've heard that you should be conservative with your investments once you retire, and that's true. The time to take big risks was when you were younger and could afford to lose a healthy chunk of money. But you can be too cautious and many retirees are, says Eric Meermann, a certified financial planner with Palisades Hudson Financial Group, working from their Scarsdale, New York office.

You still want to mix it up a little with your stocks, bonds and cash, Meermann says.

Especially if you're retiring in, say, your early 60s since your life expectancy could be well into your mid-80s, Meermann says.

"It's not necessarily the best idea to drastically reduce your stock exposure the minute after you hang it up," he says.

Hryck agrees. "Regardless of your age, I believe that everyone should have some exposure to stocks," he says. "Do not retire from investing."


Source: money.usnews.com