Saving for retirement is challenging enough, but managing your income once you stop working can be an even greater challenge. Complicating matters even further is the fact that financial advisers may manipulate retirees into making poor decisions that can deplete funds in just a few years.
You cannot take chances with your retirement. Avoid these three mistakes with your retirement income.
1. Not Understanding the True Cost of Financial Products
One of the biggest mistakes that retirees make is failing to thoroughly understand and vet the financial products they invest in. Hidden fees can cause you to lose a significant amount of money that you cannot afford to lose.
Unfortunately, there are unscrupulous financial advisers that will steer retirees in the direction of these products with promises of guaranteed or higher returns. But they fail to mention that these returns can take years to obtain.
For example, some financial advisers may suggest cashing in one annuity and buying into another. Such a turnover could bring in 5% or more in commissions, but they may also come with penalty costs for the retiree which can put a serious dent in the retiree’s savings.
2. Not Planning for Taxes
When it comes to retirement planning, taxes are often an overlooked issue. It’s important for retirees to be aware of how taxes can impact their savings, and that’s where the services of a tax attorney could be beneficial.
Overpaying or not planning properly for taxes could potentially erode a retiree’s income rather quickly.
In 2019, retirees who are single with a combined income of $25,000-$34,000 will pay taxes on up to 50% of their Social Security benefits. When combined income rises above $34,000, retirees will pay taxes on up to 85% of their Social Security benefit.
For married couples filing jointly, they will pay taxes on up to 50% of their Social Security benefits if they earn a combined income of $32,000-$44,000. If the income is above $44,000, they will pay taxes on up to 85% of their benefits.
Right now, it’s possible to switch from a traditional IRA to a Roth IRA potentially tax-free. A tax lawyer may be able to guide you through the process.
3. Exposing Investments to Risk
Many investors overlook the importance of managing risk exposure, and far too many expose themselves to too much risk. In doing so, they put their entire portfolio at risk of not lasting throughout retirement.
In some cases, retirees have overexposure to a riskier stock percentage. In other cases, investors are putting too much into bonds which doesn’t give other investments enough time to appreciate.