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How to avoid these common financial killers in retirement

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January 6th, 2017
Money changing hands.
Money changing hands.

You’ve worked hard to save for retirement. So it’s important to be aware of certain life events or habits that could cause you to go broke, despite careful planning during your working years. Here are four common things that are detrimental to finances in retirement and advice from professionals on how to avoid them.

The problem: Your house is too expensive. 

Maintaining a large house, long after your children have moved out, can take a toll on your finances in retirement. “One of the main reasons we see people struggling to maintain their nest egg after retirement is large unplanned expenses and their effect on a portfolio,” says Massachusetts financial advisor Pedro Silva (provofinancial.com). “When the first few years of retirement are spent fixing up a house, the unplanned cost of remodels, roofs, driveways, can often take what would have been one or more year’s spending in one chunk.” Keeping up a house can get even more expensive as you get older and need to pay for more assistance with chores like snow shoveling or lawn care. 

The solution: Katie Ross, education and development manager for American Consumer Credit Counseling (accs.org), says minimizing housing expenses in retirement can be beneficial. “Retirees should try to figure out costs or get their living arrangements settled before they stop working,” she says. “Downsizing from a large house to a condo or smaller house is a good way to mitigate costs and potentially boost savings from the sale of a large home.”

The problem: Your investments aren’t risk-adjusted for retirement. 

Rodger Alan Friedman, author and retirement planning counselor (advantagefamily.com/rodger-friedman-bio), says he often sees people who are retired or soon will be with investment portfolios that lack a clear strategy or are overweight in a single asset class. “Occasionally, the portfolio contains only one or two stocks,” Friedman says. “The result is that many investors, especially those close to retirement, may be taking more investment risk than they realize.”

The solution: A trusted financial advisor can help you make sure your money is invested properly to generate the kind of retirement income you need. 

The problem: You get divorced.

Ending a marriage at any point in life is difficult, but during retirement, divorce can be devastating, according to financial planner Richard Reyes
(thefinancialqb.com). “One of the most interesting things I’ve learned in my 18 years [in business] is that we all get used to our standard of living, and whether it’s a divorce or death, it doesn’t get any cheaper to live your life married or single,” Reyes says. On top of that, you could lose out on your spouse’s social security or pension benefits. 

The solution: Of course, you don’t want to stay in a bad marriage, but if you suspect a messy divorce will hurt your finances in retirement, then it’s wise to hire a good attorney and also consider working part-time to replenish your nest egg.

The problem: You’re giving handouts to family members.

It can be difficult to say no to children or grandchildren in need, especially if you have historically helped them out with money. But, Glenn Carter, founder of TheCasualCapitalist.com, says that lending money during retirement can be risky.

The solution: Resist the urge to offer financial help. Assist in ways that don’t deplete your savings, such as babysitting grandchildren or sharing professional contacts with an out-of-work relative.

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