Three Mistakes That Could Ruin Your Retirement

Some 10,000 Americans will retire each day, some more successfully than others. Here are three mistakes you should avoid to ensure you’re one of the successes:

Mismanaging Social Security benefits

Many retirees collect Social Security benefits as soon as they are eligible at age 62, but doing so comes at a cost: You’ll collect less each month than you would have if you had waited until age 65. Many believe that if you live a long time, it evens out, but you may not want to bet on that, especially if you don’t need the benefits to cover living expenses. Delaying benefits until age 70 can boost your payout by as much as 70 percent. So think twice before you take benefits at age 62.

Failing to create a budget

Some new retirees feel flush with cash…and spend. Remodeling projects are common splurges, as are one-time big-ticket purchases, such as boats and cars. These large purchases, however wonderful, can make a big dent in the money you’re going to need to live on.

Even daily expenses can add up without a budget. Research indicates that when people suddenly have free time, they tend to increase spending. These problems can be avoided by creating and maintaining a budget that’s realistic for today’s market environment and your lifestyle.

Not having a life plan

If you’re a typical new retiree, you’ve probably spent a lot of time thinking about the financial side of retirement, but there’s more to your golden years than living within your means. What are you going to do with all your free time?

Not knowing that can lead to a whole range of emotional difficulties. Smart retirees “test drive” their new lifestyle by taking more leisure time as retirement approaches. They realize they’ll need to develop new routines, hobbies and networks. Test driving helps them envision a successful future.

Be Forewarned: Reverse Mortgage Rules Are Changing

Many people have taken advantage of reverse mortgages as a means of converting home equity into cash. However, the rules are changing, and homeowners may not be able to borrow as much.

When you get a reverse mortgage, the bank will give you the option of receiving a lump sum, a line of credit or monthly payments. It is paid off (including interest) when you die, move or sell your house.

Currently, there are two types of reverse mortgages: “standard”, which allow borrowers to receive 56-75 percent of a home’s appraised value; and “saver”, where they receive less.

These will be merged as part of the rule changes. As a result, borrowers may find that they can’t access as much of their home’s value as they could with a standard reverse mortgage, but may receive more than with a “saver.”

Also likely is a cap on the amount borrowed in the first year of a loan, although the percentage is currently undetermined. If your home is worth $200,000, and you are eligible to borrow 75 percent ($150,000), the imposition of, for example, a 60 percent cap would mean you could only borrow up to $90,000 (60% of $150,000) in the first year.

As well, homeowners who need more than 60 percent of the loan to pay off their regular mortgage can take up to the entire amount they’re eligible to borrow immediately. However, a fee will be charged.

(Editor’s note: Changes were expected this fall; others will come later. This represents the situation at press time.)