Yahoo Finance 7 Money Mistakes People 50 and Older Make
Financial planning is something that will constantly evolve throughout one’s life. But no matter how prepared we are, we’re still prone to making money mistakes.
For those over 50, there are certain missteps they should be aware they might be making.
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“As an expert in estate planning and elder law with over 30 years of experience, I’ve worked closely with clients aged 50 and over to address and rectify common financial mistakes,” said Marty Burbank, estate planning expert at OC Elder Law.
“One critical error I’ve often encountered is not accounting adequately for long-term care costs,” he explained. “I recall numerous cases where individuals underestimated the expenses associated with assisted living or nursing home care.
“To mitigate this risk, I advise clients to look into long-term care insurance early, which can provide crucial financial support and peace of mind as they age.”
Below, experts identify the top money mistakes people over 50 most commonly make.
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Giving Into Lifestyle Creep
“The most common mistake people make in their 50s — when they are in their most productive earning years — is lifestyle creep,” said Robert R. Johnson, PhD, CFA, CAIA, professor of finance at Creighton University’s Heider College of Business.
“That is, letting their spending increase commensurate with their new salary.”
For instance, he said people move into a bigger house, buy a more expensive car and take more lavish vacations to reward themselves for earning more money.
“What happens is they are unable to improve their financial condition because they spend everything they make.”
Insufficient Retirement Savings
“One of the most critical mistakes is underestimating the amount needed for a comfortable retirement,” said Dennis Shirshikov, head of growth at GoSummer.com.
“Many individuals over 50 find themselves with inadequate savings due to late starts or inconsistent contributions.”
To avoid this, he said it’s crucial to maximize contributions to retirement accounts such as 401(k) plans and IRAs.
Taking Too Little Risk
“Surprisingly, one of the biggest financial mistakes people make is taking too little risk, not too much risk,” Johnson said. “Unfortunately, many people allocate retirement savings to money market accounts or low-risk bonds.”
He said they often become overly risk-averse with respect to their retirement accounts in their 50s because they see retirement on the horizon.
“The problem is that, given longevity increases, one still has a long-term investing time horizon when one is in their 50s. According to data compiled by Ibbotson Associates, large capitalization stocks (think S&P 500) returned 10.1% compounded annually from 1926-2022,” Johnson said.
“Over that same time period long-term government bonds returned 5.2% annually and T-bills returned 3.2% annually.”
Johnson added that the surest way to build wealth over long time horizons is to invest in a diversified portfolio of common stocks.
“Someone with a long time horizon should not have exposure to money market instruments, yet many investors do because they fear the volatility of the stock market.”
Neglecting Estate Planning
According to Burbank, another frequent mistake he’s seen people make is neglecting to update estate planning documents after major life changes such as marriage, divorce or the birth of a grandchild.
“These changes can significantly impact your wishes and beneficiaries. I’ve had clients who faced legal complexities and unintended consequences due to outdated wills and trusts.”
He said that regular reviews and necessary updates of estate planning documents ensure that your current wishes are accurately reflected, avoiding potential legal battles and preserving family harmony.
Shirshikov agreed: “Many individuals neglect estate planning, which can lead to legal complications and financial strain for heirs. It’s crucial to have a will, and consider setting up trusts and powers of attorney.”
Lacking a Diversified Investment Portfolio
“I’ve seen many people in this age group lacking a diversified investment portfolio,” Burbank said.
He said that over-concentration in either high-risk stocks or low-yield bonds can jeopardize financial stability.
“I consistently recommend a balanced portfolio that includes a mix of assets — stocks, bonds and real estate — tailored to one’s risk tolerance and retirement goals.
“Regular consultations with a financial advisor can help adjust your investments in response to market changes and personal circumstances, safeguarding and potentially growing your nest egg for retirement.”
Ignoring the Impact of Inflation
“Inflation can erode purchasing power over time, yet many people fail to account for it in their long-term financial planning,” Shirshikov said.
“It’s important to include inflation-adjusted returns in retirement projections and consider investments that provide a hedge against inflation, such as Treasury Inflation-Protected Securities (TIPS) or real estate.”
Underestimating Longevity
“With advancements in healthcare, people are living longer, which means their savings need to last longer,” Shirshikov said.
“Many underestimate their life expectancy and thus run the risk of outliving their savings,” he added. “Planning for a longer retirement by creating a sustainable withdrawal strategy and considering annuities can provide financial security.”
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This article originally appeared on GOBankingRates.com: 7 Money Mistakes People 50 and Older Make
