If you’re a baby boomer and you’re concerned about your financial management, this article is for you! The fact of the matter is that you only have a limited amount of time ahead of you, and it is vital that you invest your time and effort into the financial planning process. This is important to ensure a stress-free and secure future not only for yourself, but for your children and any grandchildren that may depend on your support as well.
The problem with personal finance is that it seems heavily geared towards a younger crowd these days, particularly millennials who have never dealt with any serious financial management or Generation X folks who are looking to get rid of any significant debts. There seems to be this implication that wealth planning is reserved for a certain group of people.
However, this could not be further from the truth. Long-term financial planning is important at every step of your life, and in order to be successful you have to ensure that each and every step goes right. You may have succeeded beyond your wildest dreams when you were younger, yet end up spending everything away in your older years if you are not wise with your financial planning and analysis.
The solution to this problem (running out of money in your “golden years”) will be contained in this article. We’ll be discussing five of the top financial planning mistakes made by baby boomers. With each mistake, a solution will be provided to ensure that you learn from the mistakes of others and do not repeat them yourselves. Why’s this important? Because it’s often said that “an intelligent person learns from their own mistakes, but a genius learns from the mistakes of others.”
Mistake No. 1: Keeping ANY Form of Debt
You’ve probably heard this point repeated many times in mainstream news media. This advice tends to be targeted towards younger people, but it applies equally to baby boomers as well. The problem with keeping any kind of debt, especially credit card debt, is that it affects your credit score significantly. After a while, it will become progressively harder to fully pay off with each passing month. A bad credit score will affect your ability to take loans out from banks, increase the price that you pay for insurance services, and in some cases affect your chances of employment. Debt is listed as one of the biggest regrets that baby boomers have when they look back and decide what they wish they had done differently with their money. If you have any lingering debts on you, pay them off in full as soon as you can and never go back into debt. EVER!
Mistake No. 2: Resting On the Laurels of Your Savings
This mistake involves people getting overly protective about the money they have in their savings. The idea is that you preserve as much money as you can, and gradually live off of a fraction of that money per year during your retirement until you run out. The only problem with this is that you are making several assumptions that may not come true.
First, you are assuming that you will live up to a certain age. If the tides turn in your favor and you live longer than you expect, now you’re in a situation where you have to find extra money for the next few years. Secondly, because you are not allowing your money to grow, you are robbing yourself of opportunities for gradual growth. You don’t have to invest in risky stocks, but you do want to invest your money in a place where it can collect a respectable amount of annual interest. When in doubt, remember that it’s better to grow your money instead of trying to get defensive with it.
Mistake No. 3: Assumptions Are the Mother of Regret
When it comes to financial planning tips, especially those for retirement, one of the biggest errors people make is overconfidence in the stock market. People tend to optimistically project into the future through the lens of today’s conditions. They assume that they will stay on Cloud 9 until their days are over.
This is an extremely risky move, and the crash in 2008 was a perfect example of what happened to people who had unrealistic expectations while keeping most (if not all) of their assets in equities/stocks. We tend not to understand the risk of our investments until it’s too late, so it is best to take a conservative approach. Don’t put all of your assets into the stock market, and put a sizeable portion of your money towards a stable growing retirement plan.
Mistake No. 4: Not Taking Advantage of Retirement Investing Opportunities
If you are a baby boomer and you still have a few years of solid employment, now is the time to start investing into your retirement accounts if you have not done so already. This will ensure you save a significant amount of money that would otherwise be spent on paying taxes. You don’t have to invest every single penny into these accounts, but making a sizeable monthly deposit until you reach retirement can result in an account with a high value. If you are lucky enough to get a certain percent return (5-7%) from a diversified equity-based mutual fund, the results will be even greater!
Many baby boomers wish that they had started investing in their retirement accounts much sooner, because now they are up to their necks in the additional tax money that they have to pay. That’s on top of the spending money that they will have left over for retirement!
Mistake #5: Retiring Too Early
This is related to mistake No. 2, many people decide to quit their jobs early to get into the retirement life. It’s not so much the concept of retirement, but many people decide to retire despite having many good years of solid health ahead of them and a reputation in their company that could be expanded upon. Either way, you cannot qualify for your Social Security benefits until the age of 66-67, so why waste those years being senile? There’s no actionable step that can be taken here, other than to be as productive as you can for your remaining years while enjoying the ride!
So What Should Baby Boomers Do?
There’s the age-old adage of “The best time to plant a tree was 20 years ago, and the second best time is right now.” No matter how old you are, it’s never too late to start investing your time into creating a comprehensive financial plan that will allow you to live a wholesome and enjoyable life during your retirement years. If you are already on track for success during your golden years, use this blog post as a guide – a reminder to stick with the habits that have worked well for you in the past. If not, click HERE and schedule a no cost, no obligation review with me today.