(This article appeared previously on MarketWatch.com)
Anyone who watched the recent Winter Olympics knows that small mistakes can have devastating consequences. The same is true with retirement finances.
Most people will need to continue to nurture their nesteggs — typically, for two to three decades — after leaving the office. But financial advisers say they regularly see new retirees make several mistakes that can put their savings in jeopardy.
For an article
from the The Wall Street Journal’s Sunday edition, Tom Lauricella canvassed advisers across the country to identify some of the small errors that can get retirees in big trouble. Here are three of them:
(MORE: Avoid These 5 Money Pitfalls of Pre-Retirees)
1. Big purchases Many people like to reward themselves when entering retirement — typically, with a trip or purchase to mark their decades of hard work. Ronald Myers, an adviser at Associated Financial Consultants in Fort Lauderdale, Fla., calls it “YOLO money” for “You Only Live Once.”
“I’m the first guy to say, 'Go out and enjoy yourself early on; you aren’t going to get any healthier,'” Myers says. But some retirees go too far, spending funds that can blow a hole in their retirement plan.
Example: A retiree who plans to withdraw $25,000 a year from a $500,000 nest egg and starts retirement by taking $50,000 to buy a boat. That’s two years of income.
If that big withdrawal is followed by a lengthy market decline, the retiree’s nest egg could expire before he does.
2. No cash cushion “I see a lot of people cutting it really close and living paycheck to paycheck” in retirement, says Blair duQuesnay, director of investments at ThirtyNorth Investments in New Orleans, La.
The problem comes when an emergency arises, requiring extra cash on short notice. If that outlay means selling investments in a bear market, the retiree could be locking in losses that can’t be recovered.
(MORE: Suze Orman's Tough Money Medicine)
DuQuesnay’s firm advises clients to keep six months to one year’s worth of cash on hand for replenishing that stockpile.
3. Forgetting investment common sense With many nesteggs smaller than they should be, new retirees are apt to look favorably on investments promising big payoffs with low risk. But the cliché is true: There’s no such thing as a free lunch.
People “have a unique ability to suspend common sense, believing that strangers want to let us in on deals that are too good to be true, which of course, are,” says Alan Roth, a financial planner in Colorado Springs, Colo.
He points to several telltale signs that should alert retirees to hang up the phone on a sales pitch. They include: a sense of urgency (“The deal is only good today!”); using a church or fraternal organization to vouch for its credibility or a play on emotions.
Glenn Ruffenach is News Editor at The Wall Street Journal, responsible for the Journal’s coverage of retirement finances and retirement planning.
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This article is reprinted with permission from MarketWatch.com. © 2015 Dow, Jones & Co., Inc. All Rights Reserved.