Ah, retirement. The golden years. Time to kick back and enjoy a little well-earned rest and relaxation.
Not so fast. For many older Americans, their later years are filled with financial worry. And much of it is self-inflicted.
Here are four key mistakes retirees make that can leave them living on financially shaky ground.
1. Investing Too Conservatively
I still remember my high school golf coach stressing the importance of hitting through the ball instead of to the ball. Something similar can be said about investing in retirement.
It would be a mistake to think of your retirement date as something you invest to, after which you shift dramatically into an ultra conservative investing mode.
Play it too safe with your nest egg and inflation will wreak havoc on your hard-saved money.
With the odds increasingly stacked in favor of living a long life, it's important to continue investing in a way that you're likely to at least outpace increases in the cost of living. That usually means maintaining some level of exposure to stocks.
One way financial advisers suggest minimizing the fear of stock market investing in your later years is to develop a healthy cash savings accountbefore retirement — a very healthy savings account.
More specifically, they recommend having one-to-two years' worth of living expenses in savings. During times of market decline, the idea is to withdraw from that savings account for living expenses instead of drawing on your investment account, thereby giving your investment account time to recover.
2. Investing Too Aggressively
Of course, the opposite is true, as well. You don't want to hit retirement, realize you don't have enough in your IRA or 401K, and try to make up for lost time by investing like you're a 20-year-old with plenty of time to ride out the markets ups and downs.
The time-tested principles of asset allocation still apply. Take a good risk tolerance questionnaire and set your stock/bond mix accordingly.
3. Carrying Too Much Debt Into Retirement
Ideally, you want to retire your mortgage by the time you retire from your job. Having to continue paying on what for most people is their single largest expense can be burdensome, especially with health care expenses looming as a great unknown.
Today, however, more seniors than ever are still making payments on their homes. According to the Consumer Financial Protection Bureau, about 30% of homeowners age 65 and older have mortgages.
And not only that. Many seniors are still paying off student loans. In 2014, about 17% of outstanding student loan debt was held by borrowers in their 50s, according to the New York Fed. Some of that debt was incurred for the borrowers' own education, perhaps because they went back to school later in life or they refinanced earlier loans. Some of it was for their kids or grandkids.
If you still have mortgage, student loan, or credit card debt, it can be helpful to your sanity and your solvency to delay retirement until such debts are paid off.
4. Keeping the Bank of Mom and Dad Open
According to a Merrill Lynch study, 68% of parents age 55 or older have provided some form of financial support to their adult children in the past five years. That support included helping to make their rent or mortgage payments, pay their cellphone bills, cover their car payments, or pay their health care costs.
Many other parents stand ready to help. According to a study by BMO Harris Premier Services, nearly 50% of parents said they'd be willing to put off their retirement if their adult children needed financial help. Some 25% said they would take on debt, and 20% said they'd raid their retirement accounts if necessary.
However, in their classic book, The Millionaire Next Door, authors Thomas Stanley and William Danko said many parents mistakenly assume that soon after providing some financial help, their adult children will be financially self-sufficient. Instead, they found that recipients of so-called "economic outpatient care" all-too-easily become dependent on such help, making it bad for the adult children and their parents alike.
Far better, they said, to "teach your children to live on their own."
My high school golf coach didn't let us take do-overs, or "mulligans," during practice rounds. He said it was a bad habit. After all, there would be no second chances in a tournament.
The same can be said about managing money in retirement. When we get older, we simply won't have time to recover from financial mistakes. So take these lessons to heart as you plan for a financially secure retirement.