By Timur Abimanyu, SH.

MH

The Washington Post

8 Bad Money Habits to Drop by Retirement

Not Saving for Retirement
MainStreet recently reported that one in six older Americans lives below the poverty line.
This means millions, or 16% of seniors, lack the financial resources they need to get by and
are being forced to take extreme measures such as cashing in assets, moving, returning to
work or tapping the government for help.
Even if you're not poor, don't let a lack of planning hinder your financial future.
"These boomers think that it's 'after right now' that it's time to start saving," says Stuart L.
Ritter, a certified financial planner with T. Rowe Price, "but that's a way to not have to make
any changes." Start saving now to spare yourself the heartache later.
[Click here to check savings products and rates in your area.]

Obsessing About Taxes

Ritter says one of the top misconceptions boomers have about individual retirement
accounts is that taxes account for everything. And while they do matter to an extent, "a lot of
people say that they want to pay less in taxes, when I'd personally like to pay significantly
more. Hey, I want my boss to give me a massive salary increase so that I would pay more in
taxes!" Ritter says.
Unfortunately, using taxes as the sole criterion for whether you use a Roth IRA or a
traditional IRA can also mean higher long-term costs down the road, Ritter notes.
"Often, an upfront tax loss [with a Roth IRA] will give you more to spend in retirement," but
many will opt for the traditional IRA because it looks better on paper.

The 'I'll Just Work Longer' Mentality

"I'll start my diet tomorrow" is a common excuse heard long after New Year's Eve, but are
you taking the same approach to your savings by saying you'll push off retirement to work
longer?
If so, you're only procrastinating, and that's not an effective savings strategy, Ritter says. By
planning your finances ahead of time, you won't need to pseudo-commit yourself to work,
which may or may not be a option, depending on your health (and the economy).

Betting on Your Inheritance

The nation's largest-ever intergenerational transfer of wealth is under way, and a nest egg of
$11.6 trillion will be handed over to boomers from their elderly parents.
But you might not be one of these lucky inheritors, says Gabrielle Clemens, a certified
divorce financial planner, and you'll need to manage your assets on your own. "Many of
these people, especially divorcees, are banking on their inheritance," Clemens told
MainStreet. But when tragedy strikes, Americans turn to three bad options: credit cards, the
generosity of living family members and even bankruptcy. Keep your dignity intact and you
won't have to go down those rabbit holes.
[Easy Ways to Save $50 a Day]

Skipping Long-Term Care

"Having a plan for long-term care, whether that's insurance, is something probably every
boomer should consider," Ritter says. Yet few boomers aged 46 to 64 actually do, according
to a recent New York Life Insurance survey. While many boomers value long-term care and
the role it played in their own parents' lives, only 9% of 1,073 online respondents actually
bought coverage for themselves because many (47%) felt they won't ever need it or assume
the government will foot the bill.
Still, as America's health care costs ramp up and obesity and morbidity grow alongside it,
older Americans face a decreased quality of life and need to be prepared.

Forgoing Employee Benefits

Are you working for one of those post-recession employers that still shows employees it
cares? Wise up and sign on for the benefits being offered.
As TheStreet recently reported, "with the worst of the recession in the in the rearview
mirror, benefits are getting a second look," and some employers are finding cheap but
effective ways to make employees feel special. That might mean adding a couple more days
of paid vacation (not to mention holiday, sick and personal time) or throwing in retirement
perks, from pensions to 401(k) plans. Sounds good to us -- it should to you, too.
[What Doctors Wish Their Patients Knew]

Not Using Your FSA

Too many boomers fall into the trap of thinking that if you don't use it, you'll lose it, Ritter
says. While this is true with flexible spending accounts (FSAs, in which pretax income is set
aside to pay for health or dependent care expenses), the tax benefit can outweigh the use-it-
or-lose-it provision. "That's all they'll focus on and they'll give up huge benefits that FSAs
provides."
Think about it this way: Without an FSA, $100 of salary taxed at 30% to 40% means you'll
lose $30 to $40. "But here's the counterintuitive thing," Ritter adds, "if at the end of the year
you didn't use the $100, you've still got $30 and loose change and you'll come out ahead."
Besides, with an FSA there are deals to be had. "Every optometrist has a sign saying 'use
your FSA at end of the year,'" Ritter notes.

Taking Social Security Too Soon

Remember the phrase "Good things come to those who wait?" According to Ritter, "taking
your Social Security too early isn't part of a solid financial plan either." That's because for
every year you stave off the temptation to take those funds, you'll get a 7% to 8% payout
increase guaranteed and adjusted for inflation up to age 70. Many boomers do it because
they can, but they're really only hurting themselves in the long run. by Jill Krasny
Tuesday, March 1, 2011

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