Members of the baby boomer generation—those Americans born between the mid-1940s to the mid-1960s—are heading into retirement age in large numbers these days. But this generation faces numerous challenges to a financially stable retirement.
Here are the 10 biggest mistakes boomers make with their money and retirement investments:
1. Assuming real estate always appreciates
Many baby boomers bought their homes when the market was strong, assuming that real estate would always stay at that level or continue to appreciate. While real estate prices are climbing again these days after the slump seen during the Great Recession, many boomers retiring before the recovery found they had a lack of cash flow due to making payments on real estate not worth a fraction of the original cost.
2. Using home equity as a primary retirement nest egg
If there should be another real estate slump, boomers who bought real estate as an investment may find themselves paying high payments on something that is only valued at a fraction of the original cost.
3. Failing to diversify investments
Failing to spread investments into more than one area means that if something happens to the one investment, no options remain. Boomers are notorious for investing everything in one pot. In the past, baby boomers often made their money by following the instantaneous profit or “quick buck” strategy. Today, however, boomers may find themselves cash-poor because the quick buck markets failed.
4. Underestimating their life expectancy
People are living longer today than they did in the past. Many boomers underestimate how long they will live and do not plan properly for their retirement. When calculating what age to begin collecting Social Security, a person’s overall health should help to determine when to begin the process.
If you are in good health, and think you will live to be at least 80, you can benefit by waiting until age 65 to begin collecting Social Security. A plan of 10 to 15 years of retirement used to be recommended, but today experts recommend planning for 15-20 years or more of retirement.
5. Sacrificing retirement for their children
Many baby boomer parents are maxing out their home equity line of credit (HELOC) or, even worse, borrowing from their retirement accounts to pay for their children’s college educations. Retirement accounts should be left untouched until actual retirement, and used to plan for things such as the possibility of long-term medical care and funeral expenses.
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6. Addiction to material things
Many in the baby boomer generation are accustomed to acquiring what they want, when they want it. Because of this instant gratification habit, their debt can grow to unmanageable levels. When the economy takes a tumble, they still have bills to pay. When people approach retirement age, thinking about simplifying is better than continuing to acquire material goods.
7. Failing to save money
People need money to live, and the most reliable way to make money is to work. The trick to actively managing money, rather than being managed by it, is to learn how to control the outgoing ledger so more money is coming in than you are spending.
If you do not control your money, you may find yourself working all of your life and never finding the money to retire.
8. Divorcing and remarrying
Baby boomers are also accustomed to multiple remarriages, which includes multiple divorces. Along with those divorces come property settlements; starting over means losing equity. The more equity you have, the more the divorce may cost.
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9. Relying solely on Social Security for retirement income
As a generation, baby boomers are used to a good income. If they are depending on Social Security for their retirement income, they will likely be unpleasantly surprised. Once a person enters retirement age, the medical bills will usually increase and Social Security alone will likely not pay for all living expenses.
10. Relying on their partner’s retirement plan
If boomers have had multiple marriages, then the chance of relying on a partner’s retirement plan, along with their own, is slim. Even if you stay married, the possibility of the premature death of that partner would mean you no longer have that second source of income. Plan for how you would survive financially were you to lose half of your household income due to the death of your spouse.