Mid-Life Money Errors | Planning Insights

Anne Hussman |

If you are between 40 & 60, beware of these financial blunders & assumptions.

Between the ages of 40 and 60, many people increase their commitment to investing and retirement saving. At the same time, many fall prey to some common money blunders and harbor financial assumptions that may be inaccurate.

Investing with more risk. If you are behind on retirement saving, you may find yourself wishing for a “silver bullet” investment or wishing you could allocate more of your portfolio to today’s hottest sectors or asset classes so you can catch up. This impulse could backfire. The closer you get to retirement age, the fewer years you have to recoup investment losses. As you age, the argument for diversification and dialing down risk in your portfolio gets stronger and stronger. In the long run, the consistency of your retirement saving effort should help your nest egg grow more than any other factor.

Focusing on building wealth rather than protecting it. Many people begin investing in their twenties or thirties with the idea of making money and a tendency to play the market in one direction – up. As taxes lurk and markets suffer occasional downturns, moving from mere investing to an actual strategy is crucial. At this point, you need to play defense as well as offense.

Saving for retirement is a secondary priority. It should be a top priority, even if it becomes secondary for a while due to fate or bad luck. Some families put saving for college first, saving for mom and dad’s retirement second. Remember that college students can apply for financial aid, but retirees cannot. Building college savings ahead of your own retirement savings may leave your young adult children well funded for the near future, but they may end up taking you in later in life if you outlive your money.

Paying off your home loan taking precedence over paying off other debts. Owning your home free and clear is a great goal, but if that is what being debt-free means to you, you may end up saddled with crippling consumer debt on the way toward that long-term objective. It is usually better to attack credit card debt first, thereby freeing up money you can use to invest, save for retirement, build an emergency fund and pay the mortgage.1

Taking a loan from your workplace retirement plan. This is a bad idea for several reasons. One, you are drawing down invested assets that would otherwise have the capability to grow. Two, you will probably repay the loan via deductions from your paycheck, cutting into your take-home pay. Three, you will probably have to repay the full amount within five years – a term that may not be as long as you would like. Four, if you cannot pay the entire amount back and you are younger than 59½, the IRS will characterize the unsettled portion of the loan as a premature distribution from a qualified retirement plan – fully taxable income subject to early withdrawal penalties.2

Watch out for these mid-life money errors and assumptions. Some are all too casually made. A review of your investment and retirement savings effort may help you recognize or steer clear of them.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is
not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no
representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in
rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information
should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a
recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of
any particular investment.
Citations.
1 - nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ [6/25/15]
2 - tinyurl.com/oalk4fx [9/14/14]
Securities and investment advisory services offered through Berthel Fisher & Company Financial Services, Inc. Member FINRA/SIPC.