6 Bad Moves That’ll Haunt Your Client’s Retirement

Slideshow June 24, 2020 at 04:14 PM Share & Print

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As every advisor knows, a client planning for retirement has to start the process early. But even then, without guidance, they can make some questionable financial choices that will “haunt” them into retirement.

The American Association of Retired People recently released six money regrets that can hurt those headed into retirement. These missteps can hurt a client’s long-term plans, so make sure they avoid these bad moves when possible.

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Ginger Szala

@gingerszalaink

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1. Buying a timeshare.

In a word: Don’t. A timeshare may seem a good idea when sitting in the sales office and looking at brochures, but it turns into an expensive and inflexible option down the road. First, the yearly average price of a timeshare is $21,455, (and that depends on location, size, property), etc., according to the American Resort Development Association. This doesn’t include yearly fees that tend to go up over time, and selling a timeshare is very difficult, according to the AARP.
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2. Ignoring long-term care.

Statistics show that younger generations are buying into long-term care at an increasing rate, but many close to retirement have missed that boat. With long-term care — which is not covered by Medicare — costing more than $100,000 a year for a private room, and close to $20,000 a year for adult day care, insurance to cover it would be money well spent.
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3. Missing out on a Roth IRA.

The beauty of a Roth IRA is it requires clients to pay taxes upfront on their contributions, but withdrawals taken after retirement are tax-free, as long as the account has been open for at least five years and the client is at least 59-1/2 years old, states the AARP. Also, money can remain untouched as long as desired, unlike with a traditional 401(k) or IRA, from which they must start taking annual required minimum distributions.
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4. Selling your future for your kids'.

The cost of higher education has drained many a retirement plan as parents trade those funds for their child's college degree. But an advisor can help clients achieve both, and many experts, according to the AARP, say they should err on the side of retirement. Why? There are no financial packages available in retirement. Further, by not being prepared in retirement, a client could become a burden to their children.
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5. Avoiding the stock market.

A big no-no. There are still those who want to keep money in cash or even under the mattress. As every advisor knows, investing in the stock market, despite its recent volatility, is essential, especially when young. Share these tidbits with clients: The interest rate on a savings account is just 0.55%, on average, according to Bankrate. By contrast, the S&P 500 has returned an annualized 10.2% over the past five years through June 19, according to Morningstar.
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6. Skimping on saving.

A no-brainer but something many clients do in their all-important working years. Not only could not saving enough delay retirement, a client may need to live less comfortably during it. One key piece of advice from the AARP: Clients should start small and work their way up as finances allow. Spending a little less will let them save a little more. Once they hit age 50, they should, if possible, take advantage of higher catch-up contribution limits for retirement accounts.
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