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Boatman: Avoid money mistakes in retirement

| Wednesday, Feb. 5, 2014, 12:01 a.m.

Forbes magazine recently did a report on the 13 biggest money mistakes retirees make.

I recommend this article to my readers. You should be able to find it by Googling Forbes' website. We are going to discuss the highlight today. We have discussed many of them in the past.

Their first point is not having a tax-efficient retirement distribution strategy. Many different buckets of money that people have accumulated are taxed differently. While retired, you will need access to some of your money in lump sums and some as steady income to cover everyday living expenses. Many people are persuaded by financial salespeople to invest certain pools of money into investments because it is accessible today and they want to make the sale even though it is not what they need to purchase. This often ties up non-qualified money into things that are not available in lump sum. Non-qualified money is money that you saved after taxes. That means it is not a 401k or IRA. When you need lump sum money to buy a new car, replace a furnace or take a vacation, it is cheaper to tap non-qualified funds because you have already paid the taxes.

Qualified funds are often best for everyday necessities such as groceries, utilities and other living expenses. These funds can continue to grow tax deferred. Any Roth IRAs must be kept separate from both qualified and non-qualified for tax purposes. If possible, Roth assets would be used last since any earning grows income tax free and there are no required minimum distributions.

Forbes discusses the importance of proper Social Security planning. It says that “most people start SS benefits too early because it's the fastest way for someone to increase their secure income.” Proper planning could potentially lead to tens of thousands of dollars of income over a couple's lifetimes. If you have made a Social Security decision within the last 12 months, you should talk to an expert in this area and find out if you used the best strategy.

The third point of the article talks about the mistake many people make focusing on returns and not how to turn retirement assets into income. The strategy is completely different during the distribution phase than it was while accumulating assets. You also have to balance being safe with your investments and still having enough growth to keep up with inflation so that you can maintain your standard of living. It suggests that you are careful about who you take financial advice from. Family members and friends may have good intentions, but they do not have the specialized training. The article offers tips on the kind of advisor you should get.

The article speaks about the need to manage your spending so that you control your debt and concerns about providing financial assistance to adult children. Another area of concern raised is being over invested in your house. Some people are home-rich, but cash-poor. Sometimes it makes sense to down-size if your house is too big for your current needs. A reverse mortgage might make sense, however you have to do a careful review. Because of the lower house values in the Mid- Mon Valley, reverse mortgages do not always provide a large income stream. Do not take out a reverse mortgage to use the money for another investment.

Your expenses will change in retirement. Something such as clothing and transportation to work will cost you less in retirement, however many things will cost more. Health care is the biggest one. A recent Fidelity study cited in the study finds that estimated health care costs will be $220,000 over the course of retirement. People usually project that this cost will only be $50,000. Long-term care costs, which are not covered by Medicare, could be more than $65,000 per year.

Other concerns voiced include spending too much early in retirement and not being on the same page as your spouse. Hopefully, your retirement will last several decades. With proper planning, you can get maximum enjoyment and less stress.

For four weeks in March, there will be free workshops at the Mon Valley Financial Education Center in Monessen. Among the topics will be Social Security and Retirement School. These workshops are jointly sponsored by The Valley Independent, Valley 1st Credit Union and Boatman Wealth Management.

Gary Boatman is a certified financial planner and a local businessman who serves as president of the Monessen Chamber of Commerce.