Briefly Noted

    Baby Boomer Boo-Boos: The 5 Biggest Retirement Planning Mistakes

    1) Thinking it’s too late to start planning: Once you reach your 50s or 60s, it may seem too late to start investing, but thanks to the power of compounding, boosted by the tax-deferred growth offered by IRAs and 401(k)s, it may not take as much as you think.

    2) Underestimating life expectancy: Almost 20% of workers expect their retirement to last 10 years or less. But half of the men reaching age 65 have an additional life expectancy of approximately 17 years, while half of the women reaching age 65 have an additional life expectancy of approximately 21 years.

    3) Miscalculating savings needs: Studies indicate many people may not be correctly estimating their retirement needs. But thanks to software and on-line calculators, it’s easy to do.

    4) Not taking inflation into account: Many investors, particularly older ones, invest solely in Treasury bills, fixed-rate CDs, and savings accounts. Doing this could potentially eat away at most of their investment return, as these vehicles tend to return close to or less than inflation. As you approach retirement, it’s important to consider keeping some money in growth investments.

    5) Putting other financial goals first: You may also be saving for your children’s or grandchildren’s college education or saving for the down payment on a second home, for example. These are all important, but don’t place them ahead of a financially secure retirement.

    High Anxiety: Retirement Savings

    A survey by the Commission on the Regulation of U.S. Capital Markets reveals a workforce that plans on retiring early, if not on time, yet often feels uncertain or scared when considering saving for retirement.

    Some of the key findings include:

    • Over half (57%) of working adults have less than $100,000 saved for retirement, and 28% of those in the workforce have less than $10,000 saved for retirement.
    • Only 29% of working adults think that they will need to postpone their retirement due to insufficient savings.
    • Fully 52% of working women and 39% of working men are not comfortable about making their own retirement savings decisions.
    • Only 42% of working adults know how much money they will need to live comfortably during retirement.
    • Almost half (46%) of working adults feel they do not/will not have enough money to maintain their standard of living in retirement.

    How to Tie the Financial Knot

    Some 2.5 million people in the U.S. file for divorce each year, and roughly 57% of all divorces are due to arguments over money. Tying the knot binds your finances together, for better or worse. So what financial steps should individuals consider when getting married? CPAs recommend that married couples take five steps to better manage their finances and avoid issues that could damage their relationship:

    1) Be honest, and show your financial warts. Start with your credit report. Everyone has baggage when it comes to their finances, and these problems will be a burden shared by both of you. While you’re at it, share information on your spending habits and any other financial commitments.

    2) Keep at least two accounts. It may be a good idea to have a pot of money shared between the two of you to be used for paying the household bills, and each spouse should be able to take over the joint account. And you may want to keep some discretionary cash on the side.

    3) Beware of joint filing risks. There are many benefits to filing jointly—tax breaks for one. But if you have concerns about your spouse’s credit history, you may want to take some precautions. Once you file jointly, you’re just as liable. You can get relief from joint liability if you apply for innocent spouse status to the IRS, but it can be very hard to prove.

    4) List your assets. If you’ve been married for a while, it’s natural to forget who owns what. But it’s always a good idea to list what you have and then determine how you want it to be distributed after your death. Unless it’s specifically stated in a will or a living trust, your assets might all go to your spouse. If you’re in a second marriage, you want to pay specific attention to this.

    5) Be 401(k) savvy. Plans may have different matching contributions and investment options. Make sure you know the strengths and weaknesses of each of your retirement plans so you can balance out each others’ investments.

    Source: AICPA National CPA Financial Literacy Commission.