7 Worst Mistakes Boomers Can Make With Money — and How To Avoid Them
Written by
Cindy Lamothe
Edited by
Angela Corry
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Every generation comes with its own set of challenges and opportunities. For boomers, there are certain fumbles they can make with money that will significantly hinder their financial situation in retirement.
“Boomers often face financial pitfalls that can jeopardize their retirement,” said Stewart Willis, President of Asset Preservation Wealth & Tax.
Below are some of the worst mistakes and how to avoid them.
Putting All Investments Into Cryptocurrency
According to Melanie Musson, finance expert with Insurance Providers, some boomers make the mistake of putting all their investments into cryptocurrency.
“Crypto has had an impressive run. It could grow rapidly, or it could fizzle. It’s risky. High-risk investments have a place in a diversified portfolio, but they’re not where a boomer should allocate all their savings.”
She noted that boomers’ retirement finances don’t have time to bounce back from a major loss.
Instead of putting everything into crypto, she advised investing in a diversified portfolio favoring low-risk options.
Racking Up Credit Card Debt
Another financial pitfall is racking up credit card debt.
“Credit card debt is expensive. Interest rates are ridiculously high. If you get into credit card debt, you’ll pay back far more than you borrowed, making your retirement savings disappear more quickly than you anticipated,” said Musson.
She recommended avoiding credit card debt by only using credit cards to buy things you have the money to buy.
“Make a budget and stick to it. Even if you haven’t lived by a budget in the past, it’s not too late to get started now.”
Underestimating Risk Exposure
Many Boomers fail to assess how much risk they are actually taking in their investment portfolios.
“This can lead to panic-selling during market downturns and missing out on subsequent rebounds,” said Willis.
He said regular portfolio reviews and working with a financial advisor can help align investment strategies with risk tolerance.
Over-Reliance on Tax-Deferred Accounts
“Many boomers diligently save in IRAs, 401(k)s and thrift savings plans without realizing that a significant portion of their savings belongs to the government due to future tax liabilities,” Willis observed.
He said large withdrawals can trigger high tax bills, Medicare penalties and Social Security taxation.
A diversified approach that includes tax-free income sources, such as Roth accounts or municipal bonds, can help mitigate tax burdens.
Failing to Plan for Healthcare Costs
Boomers also tend to underestimate healthcare expenses, including long-term care and other old-age necessities such as hearing aids and dentures.
Taking advantage of Medicare open enrollment periods each year is important too to keep healthcare coverage in line with current health issues. It can also save you money when it comes to premiums, deductibles and copayments which can add up as you see more specialists.
Overspending in Early Retirement
According to Willis, some boomer retirees go on spending sprees, assuming their savings will last forever.
“Without a proper budget and sustainable withdrawal strategy — like the 4% rule — they may run out of money too soon.”
In fact, according to a recent GOBankingRates article, experts now say 3.7% is the new safe withdrawal percentage because of the current high inflation rates.
Ignoring Inflation
Speaking of inflation, many boomers fail to factor in what the future economy will look like when planning their retirement income.
“Fixed pensions or low-yield investments may not keep up with rising costs, diminishing their purchasing power over time,” Willis noted.
He added that investing in assets that outpace inflation, such as stocks or inflation-protected securities, can help.
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