3 Common Money Mistakes That Senior Citizens Should Avoid

Instead of enjoying their golden years, senior citizens could be jeopardizing their retirement by making these three common money mistakes. Find out how they can easily be avoided.

Jul 19, 2014 at 8:32AM

Source: Moodboard, Flickr.

Your golden years should be filled with vacations, ample time with family and friends, and, of course, relaxation. However, for far too many senior citizens risk losing this dream because they're making the same financial mistakes as their predecessors.

Although no one is guaranteed to have enough money to last them the rest of their life -- save for the rare exception of people like Warren Buffett who have a wallet that expands into the billions -- there are steps senior citizens can take now to ensure that they don't succumb to three of the most common money mistakes that can wreck their retirement.

Investing too conservatively
Following the worst recession in seven decades, many senior citizens have a natural aversion to investing in the stock market. For decades most financial advisors have warned seniors against investing in riskier assets like individual stocks and have instead guided seniors toward cash-preserving investments such as bonds and CDs. What I'm here to tell you is that this advice may instead be a path to cash depletion.

Source: StockMonkeys.com, Flickr. 

Historically low lending rates have pushed CD and bond rates to historically low levels. Finding a CD that yields in excess of 1% is practically impossible, while finding a bond that will return more than 4% is equally difficult. Yet seniors are allowing their financial advisors, friends, and family to influence their decisions and are actively engaging in these investments without realizing that an inflation rate of 2% or 3% is going to make their nominal money gains worthless!

What seniors need to do is twofold. First, if they are capable of doing so, they need to play an active role in the financial management of their money. This doesn't mean you can't invest your money with an investment firm, but it does mean that you have a say on where your money gets invested. Senior citizens need to fully understand the ramifications of what inflation can do to their nest egg if they accept low-interest returns.

Also, I firmly believe senior citizens should have at least a small portion of their nest egg invested in the stock market. This doesn't mean seniors should consider buying the next social media craze by any means. However, there are a number of large cap stocks that exhibit low-volatility, have strong cash flow, and offer healthy dividends to shareholders that often top what you'll find in a CD or even a corporate bond. Plus, investors have the opportunity to take advantage of share price appreciation as well.

Not planning for the "long haul"
The second mistake that a number of seniors make is in assuming that they have enough money to last the remainder of their life. As I mentioned earlier, essentially no one knows for certain if they'll have the funds to live comfortably the rest of their life.

But what I can tell you is that some seniors aren't factoring in the aspects of improved health care services, medicine, and nutrition. The end result is that we are living longer than ever according to statistics from the World Bank. Since 1994 life expectancy in the U.S. has jumped from 76 years to 79 years. This means the length of time people are retired and living off of their nest egg is only growing, which means their nest egg needs to continue growing as well.

Source: Adrian Clark, Flickr.

Yet, planning for the long haul also includes ensuring that seniors have enough money to cover their long-term medical expenses. According to Fidelity Investments in 2012, a 65-year-old couple readying to retire would need to set aside $230,000 simply to cover their medical expenses during retirement. What many seniors fail to comprehend is that government-sponsored Medicare isn't a free ride and citizens will be expected to pay their fair share for prescription, hospitalization, and surgical procedure costs.

There are a couple of solutions here. First, similar to the first common money mistake, never stop investing for your future. Sitting on your nest egg won't help if you live into your 80's, 90's or even longer. You need to proactively assume that you're going to live a long and fruitful life and invest your hard-earned money to match that view.

In addition, it could be worthwhile for select seniors to consider looking into Medicare Advantage plans, although everyone's situation differs. Medicare Advantage replaces traditional Medicare plans offered by the government, and tends to be a bit costlier. However, it can also expand what services and prescriptions are covered, potentially reducing long-term out-of-pocket costs.


Source: David Goehring, Flickr.

Supporting family and friends
As we get older it's not uncommon to feel proud of our accomplishments and to help those that we love financially, if possible. This can take the form of helping your children purchase their first home or car, or perhaps financing your grandchild's college education. We'd go to no end for our families and close friends, but giving them a free ride isn't the right way to prepare them for the world or to reinforce your nest egg.

As MSN Money so succinctly put it, "You can take loans out for college, but you can't take out a loan to pay for your retirement." Put plainly, by financially supporting your family members you could be putting your own retirement at risk and you may be placing those family members at a disadvantage by failing to prepare them for the real world where there are no free rides.

This doesn't mean you have to close your wallet completely to friends and family, but consider offering support in moderation. It might be difficult to keep this in mind, but your financial future comes first, then everyone else's, and not the other way around.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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