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7 Common Retirement Pitfalls You Need To Avoid

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7 Common Retirement Pitfalls You Need To Avoid

All of us will hopefully reach retirement age. This means we all need a retirement plan. Sadly, even those of us who have such a plan often don’t plan correctly for retirement.

Here is a list of 7 common mistakes and the problems they cause:

1. Overacting to market volatility

Many retirees prefer lower yielding bonds and similar funds because they believe these funds are safer. While it’s a good idea to include bonds in your portfolio, the best bet for return on your investment remains the stock market. Most investment counselors suggest that a retiree invest in the stock market a percentage equal to 120 minus their age. Be sure to keep up with inflation, especially on the products you need to buy each month. Most bond funds don’t generate enough income to do this.

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2. Relying on factors outside of your control

Make sure your retirement program does not include unrealistic goals and expense levels. Yes, retirement will cause you to reduce some expenses. However, other expenses will increase as you age, including health costs, help around the house, and hired transportation. Can you rely on your pension or government income to always be there? Many retirees work part time to increase their budget.

3. Retiring without your first few years’ income set aside

No one’s retirement or pension is paid immediately. It often takes several months or longer for that first check to arrive. You will need to pay yourself during this period. You will also need some fall back money for unexpected expenses (you can’t work overtime any more). Having extra money in the bank is crucial while you are adjusting to your new level of income. Most of us will live 20 to 30 years in retirement. It is the longest span of life.

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    4. Taking out a loan

    Taking a loan to tide yourself over is a poor deal. This is true whether you use a credit card or go through a bank. Most of your investments will not pay at the level of the interest you will pay on this loan. So, don’t do it. Find another way. One exception can be a reversed mortgage, especially for those are clearly outliving their retirement benefits. But, if at all possible, don’t take out loans to live. This is never a great strategy at any age.

    5. Not sticking to a plan

    As we get older, many of us become less able to manage our funds. This is why we need to have someone help us with this problem. This can be a child or a paid investment counselor. The idea here is to set up a lifetime plan and then stick with it. You don’t want to be spending your money uselessly by switching banks or other investments due to confusion. However, don’t hang on to stocks for too long either. Set up some investment standards and then stick to them.

    6. Giving too much to your children

    Your adult children need to support themselves. Don’t spend money on them that you need to live on yourself. It is okay to say, “No, I can’t afford that because I am on a limited income that needs to remain balanced.” It is fine to assist with an actual emergency, such as a car repair that crops up at a bad time, or give a gift to help with a new arrival, but don’t stray from your lifetime plan. A good idea is to consider these possible events while creating your retirement plan.

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    7. Not looking at the cost of things

    A retiree needs to live on a fixed income. This means being careful with money. Some good ways to lower costs are

    • moving to a smaller, less costly home
    • changing your state residence to one with lower or no taxes
    • taking advantage of senior discounts, many which are not income dependent
    • buying Medicare gap insurance

    The last tip is especially useful, because paying that 20 percent that Medicare does not cover for a hospital stay can really sink a retiree.

    Overall, remember that retirement needs years of planning to be successful. Be sure to think ahead, and avoid these pitfalls for a successful life after retirement.

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    Featured photo credit: StockMonkeys.com via flickr.com

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    Last Updated on January 5, 2022

    33 Painless Ways to Save Money Now

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    33 Painless Ways to Save Money Now

    In a difficult economy, most of us are looking for ways to put more money in our pockets, but we don’t want to feel like misers. We don’t want to drastically alter our lifestyles either. We want it fast and we want it easy. Small savings can add up and big savings can feel like winning the lottery, just without all of the taxes.

    Some easy ways to save money:

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    1. Online rebate sites. Many online sites offer cash back rebates and online coupons as well. MrRebates and Ebates are two I like, but there are many others.
    2. Sign up for customer rewards. Many of your favorite stores offer customer rewards on products you already buy. Take advantage.
    3. Switch to compact fluorescent bulbs. The extra cost up front is worth the energy savings later on.
    4. Turn off power strips and electronic devices when not in use.
    5. Buy a programmable thermostat. Set it to lower the heat or raise the AC when you’re not home.
    6. Make coffee at home. Those lattes and caramel macchiatos add up to quite a bit of dough over the year.
    7. Switch banks. Shop around for better interest rates, lower fees and better customer perks. Don’t forget to look for free online banking and ease of depositing and withdrawing money.
    8. Clip coupons: Saving a couple dollars here and there can start to add up. As long as you’re going to buy the products anyway, why not save money?
    9. Pack your lunch. Bring your lunch to work with you a few days a week, rather than buy it.
    10. Eat at home. We’re busier than ever, but cooking meals at home is healthier and much cheaper than take-out or going out. Plus, with all of the freezer and pre-made options, it’s almost as fast as drive-thru.
    11. Have leftovers night. Save your leftovers from a few meals and have a “leftover dinner.” It’s a free meal!
    12. Buy store brands: Many generic or store brands are actually just as good as name brands and considerably cheaper.
    13. Ditch bottled water. Drink tap water if it’s good quality, buy a filter if it’s not. Get 
        a reusable water bottle and refill it.
      • Avoid vending machines: The items are usually over-priced.
      • Take in a matinee. Afternoon movie showings are cheaper than evening times.
      • Re-examine your cable bill. Cancel extra cable or satellite channels you don’t watch. Watch the “on demand” movie purchases too.
      • Use online bill pay. Most banks offer free online bill paying. Save on stamps and checks, and avoid late fees by automating bill payment.
      • Buy frequently used items in bulk. You get a lower per item price and eliminate extra trips to the store later on.
      • Fully utilize the library. Borrowing books is much cheaper than buying them, but in addition to books, most local libraries now lend movies and games.
      • Cancel magazine/newspaper subscriptions: Re-evaluate your subscriptions. Cancel those you don’t read and consider reading some of the other publications online.
      • Get rid of your land-line. Do you really need a land-line anymore if everyone in the family has a cell phone? Alternatively, look into using VOIP or getting a cheaper plan.
      • Better fuel efficiency. Check the air pressure in your tires, keep up with proper auto maintenance, and slow down. Driving even 5MPH slower will result in better fuel mileage.
      • Increase your deductibles. Increasing the insurance deductibles on your homeowners and auto insurance policies lowers premiums significantly. Just make sure you choose a deductible that you can afford should an emergency happen.
      • Choose lunch over dinner. If you do want to dine out occasionally, go at lunchtime rather than dinnertime. Lunch prices are usually cheaper.
      • Buy used:  Whether it’s something small like a vintage dress or a video game or something big like a car or furniture, consider buying it used. You can often get “nearly new” for a fraction of the cost.
      • Stick to the list. Make a list before you go shopping and don’t buy anything that’s not on the list unless it’s a once in a lifetime, killer deal.
      • Tame the impulse. Use a self-enforced waiting period whenever you’re tempted to make an unplanned purchase. Wait for a week and see if you still want the item.
      • Don’t be afraid to ask. Ask to have fees waived, ask for a discount, ask for a lower interest rate on your credit card.
      • Repair rather than replace. You can find directions on how to fix almost anything on the internet. Do your homework, and then bring out your inner handyman.
      • Trade with your neighbors. Borrow tools or equipment that you use infrequently and swap things like babysitting with your neighbors.
      • Swap online. Use sites like PaperBack Swap to trade books, music, and movies with others online. Also, look for local community sites like Freecycle where people give away items they no longer need.
      • Cut back on the meat. Try eating a one or two meatless meals every week or cut back on the meat portions. Meat is usually the most expensive part of the meal.
      • Comparison shop: Get in the habit of checking prices before you buy. See if you can get a better price at another store or look online.

      Remember that saving money is not about being cheap or stingy; it’s about putting money into your bank account rather than giving it to someone else. There are many ways to save money, some you’ve never thought of, and some that won’t appeal or apply to you. Just pick a few of the ideas that sound doable and watch the savings add up. Save big, save small, but save wherever you can.

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      Featured photo credit: Damir Spanic via unsplash.com

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