Retirement -- 10 problems to watch out for
August 23, 2004
Anyone can make mistakes in retirement planning, but the negative effects are particularly severe for seniors. People at or near retirement typically have more to lose and less time to correct problems.
Dave White, president of Allen Park-based Harvest Partners Financial, lists 10 financial mistakes to avoid:
1. Procrastination. The earlier people start planning for retirement, the easier it will be.
2. Not making the most of existing capital. Working capital is not working. Is it increasing income? Reducing taxes? Available when you need it the most? Is there a strategy for how to spend the "last dime on the last day?"
3. Having too many eggs in one basket. There's no reason to have all your money in one investment.
4. Holding property titled jointly. You can be held responsible for anyone a contract includes. So if the joint party violates the contract, guess who will be held liable?
5. Not understanding investments, especially inflation factors, liquidation impacts and interest fluctuations. What appears to be a good investment today might not 10 years down the road.
6. Paying too much in taxes. This comes from not understanding taxes, and not just income taxes. There are a number of other taxes, or tax-related issues that can reduce retirement assets including estate taxes, Social Security and IRA pension disbursements, to name a few.
7. Failure to protect assets from such things as estate taxes, probate, or catastrophic health problems. It can be hard to think about unforeseen problems, but it's vital. People can prepare by obtaining the proper insurance and being financially ready for the unexpected.
8. Not having a realistic long-term health-care plan. Failure to plan for health-care catastrophes or the financial impact of home care, nursing home costs, Medicare and Medicaid.
9. Paying unnecessary investment fees that reduce savings. Unnecessary commissions on investments that diminish value are a waste of money.
10. Planning your vacation rather than planning your estate. It's amazing how quick people are to plan a vacation and how long people can put off estate planning.
But before you put student loan payments into your budget -- and before panicking over your debt -- weigh the pros and cons of consolidating your loan. So writes Brian O'Connell in his new book, "Free Yourself From Student Loan Debt."
The pros of consolidation:
• Fixed interest rates. If you consolidate your loans, you pay one rate throughout the life of the loans, instead of a rate that changes every year. This can help if interest rates rise.
•Immediate debt relief. Your monthly payments will be stretched out over a longer term of repayment and will be lower than if you made separate payments for each loan.
•Easy payments. Instead of sending out multiple checks to several lenders, you send one check per month to a single lender.
•Payment incentives. When you consolidate, you may be offered a discounted interest rate if you sign up for automatic payments debited from your bank account, and if you make payments on time for a stated length of time.
Cons of consolidation:
• Long-term cost. Although your monthly payments are lower, you make more of them, and over a longer period of time. This means you may also pay more in interest.
• Fixed interest rates. If interest rates decline, you're stuck with the rate you consolidated under.
For advice on consolidating your student loans, contact the U.S. Department of Education at www.ed.gov/directloan or 800-557-7392.
This is not a commitment for a loan or an ad for credit as defined by paragraph 226.24 of regulation Z.