Financial planning is something that will constantly evolve throughout life. But no matter how prepared we are, we are still prone to making financial mistakes.
For those over 50, there are certain mistakes you should be aware of that you might be making.
“As an estate planning and elder law expert with more than 30 years of experience, I have worked closely with clients age 50 and older to address and rectify common financial mistakes,” said Marty Burbank, estate planning expert at OC Elder Law. .
“A critical mistake I have often encountered is not properly accounting for long-term care costs,” he explained. “I remember numerous cases where people underestimated the expenses associated with assisted living or nursing home care.
“To mitigate this risk, I recommend clients seek early long-term care insurance, which can provide crucial financial support and peace of mind as they age.”
Below, experts identify the main financial mistakes that people over 50 make most frequently.
Giving in to the lifestyle
“The most common mistake people make in their 50s, when they are in their most productive earning years, is to change their lifestyle,” said Robert R. Johnson, PhD, CFA, CAIA, professor of finance at the Creighton University Heider College of Business.
“That is, let your expenses increase in proportion to your new salary.”
For example, he said people move to a bigger house, buy a more expensive car and take more luxurious vacations to reward themselves for making more money.
“What happens is that they can’t improve their financial situation because they spend everything they earn.”
Insufficient retirement savings
“One of the most critical mistakes is underestimating the amount needed for a comfortable retirement,” said Dennis Shirshikov, chief growth officer at GoSummer.com.
“Many people over 50 find themselves with inadequate savings due to delays in starting or inconsistent contributions.”
To avoid this, he said it’s crucial to maximize contributions to retirement accounts like 401(k) plans and IRAs.
Take very little risk
“Surprisingly, one of the biggest financial mistakes people make is taking too little risk, not too much risk,” Johnson said. “Unfortunately, many people allocate their retirement savings to money market accounts or low-risk bonds.”
He said they often become too risk-averse with respect to their retirement accounts in their 50s because they see retirement on the horizon.
“The problem is that, given increasing longevity, you still have a long-term investment time horizon when you are 50 years old. According to data compiled by Ibbotson Associates, large-cap stocks (think S&P 500) returned 10.1% compounded annually between 1926 and 2022,” Johnson said.
“During that same period, long-term government bonds earned an annual return of 5.2% and Treasury bills earned an annual return of 3.2%.”
Johnson added that the surest way to build wealth over long-term horizons is to invest in a diversified portfolio of common stocks.
“Someone with a long-term time horizon should not have exposure to money market instruments, but many investors do so because they fear the volatility of the stock market.”
Neglecting estate planning
According to Burbank, another common mistake he has seen people make is not updating estate planning documents after major life changes, such as marriage, divorce or the birth of a grandchild.
“These changes can significantly affect your wishes and beneficiaries. “I have had clients who faced legal complexities and unintended consequences due to outdated wills and trusts.”
He said periodic reviews and necessary updates to estate planning documents ensure that your current wishes are accurately reflected, avoiding potential legal battles and preserving family harmony.
Shirshikov agreed: “Many people neglect estate planning, which can lead to legal complications and financial strain for heirs. It is essential to have a will and consider establishing trusts and powers.”
Lack of a diversified investment portfolio
“I’ve seen a lot of people in this age group who lack a diversified investment portfolio,” Burbank said.
He said excessive concentration, whether in high-risk stocks or low-yielding bonds, can jeopardize financial stability.
“I consistently recommend a balanced portfolio that includes a mix of assets (stocks, bonds and real estate) tailored to one’s risk tolerance and retirement goals.
“Regular consultations with a financial advisor can help you adjust your investments in response to market changes and personal circumstances, safeguarding and potentially increasing your retirement savings.”
Ignore the impact of inflation
“Inflation can erode purchasing power over time, but many people don’t factor it into their long-term financial planning,” Shirshikov said.
“It’s important to include inflation-adjusted returns in retirement projections and consider investments that provide a hedge against inflation, such as Treasury inflation-protected securities (TIPS) or real estate.”
Underestimate longevity
“With advances in healthcare, people are living longer, which means their savings should last longer,” Shirshikov said.
“Many underestimate their life expectancy and therefore risk outliving their savings,” he added. “Planning for a longer retirement by creating a sustainable retirement strategy and considering annuities can provide financial security.”
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