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WSJ Your Money Briefing
Retirement Investing: Five Mistakes to Avoid
00:06:52
Investing too conservatively is among the biggest mistakes people make when planning for retirement. Wall Street Journal contributor Cheryl Winokur Munk outlines the biggest missteps to avoid to ensure retirees have enough money.
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Deal replaces fragmented Payroll vendors with one global system. No third parties, hire, manage and pay teams in 150 plus countries. Operate like a local everywhere. Visit d e l.com WSJ.
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Here's your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. Slow and steady wins the race, right? Well, not when it comes to investing and planning for retirement. We have the five biggest mistakes investors make coming up. First, these money and market stories you should know. The IPO of the ride hailing company Lyft and the upcoming Uber IPO are big news on Wall street but could be bad news for riders in the form of higher fares. Journal reporter Elliot Brown says that Uber and Lyft have battled each other for years in a price war that has significantly undercut taxicab fares. But but those days of cutthroat US Prices might be numbered as the companies could face pressure to generate profits. But low fares could continue if investors can put up with losses in favor of ridership growth. And both companies have enough cash in the trunk to keep up a fair war. Lyft raised $2.3 billion in its IPO last month, while Uber plans to raise $10 billion in its IPO expected in May. And sales of existing homes fell 4.9% in March in the US from the previous month. That's the word from the national association of Realtors. Sales were down 5.4% from a year ago, marking 13 straight months of annual declines. Now home sales in February had experienced their second strongest monthly gain ever, offering the possibility that the market was finally rebounding. But March's numbers were a setback as the housing market headed into the crucial spring selling season rising. Freddie Mac says the average rate for a 30 year mortgage, which approached 5% in the fall, fell to 4.17% last week. Investing for retirement is one of the most important things that we can do, and investing conservatively might seem like the smart thing to do to be sure there's enough money and in your post career years. But it turns out that's one of the biggest mistakes people make. Wall Street Journal contributor Cheryl Winiker Monk writes about some of the biggest missteps people make when preparing for retirement. And she's on the line with us. So Cheryl, it seems counterintuitive that investing conservatively to avoid risk would be frowned upon, but that can actually come back to negatively impact people.
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Yes it can. The issue is that life expectancies are so much longer. Today the average American man will live to age 76 and the average American woman to age 80. And the issue is if you start investing too conservatively, too soon, then the chances of you running out of money later on increase.
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So how can people go about bringing more risk into their portfolio? I guess a good lesson to think about is that when there's more risk, there could be more reward.
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That's true. They have to be careful, of course. But one thing that many retirees want to do is get rid of any types of scratch stocks in their portfolio. And that's not necessarily the right thing to do. They really have to look at their age, their health, their family history, and take into account potential bear market scenarios and the chance that returns may be lower and take all these factors into account.
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And another mistake you've seen people make is they spend too much early in retirement.
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Yes, they get very carried away in some cases, all of a sudden they have this freedom and they want to go on trips around the world and buy special items that they maybe they couldn't do before, things they didn't have time for before. And then all of a sudden they realize that once they spend these huge sums of money that they've really broken the bank and they risk running out of money way earlier than anticipated.
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And then you've seen that people tend to not plan out what their expenses will be in retirement.
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That's correct. They know what their expenses are before they retire. In many cases. In some cases they don't, but in many cases they do, but they just don't kind of look ahead. One area where they really fall short is health care. Fidelity just came out with a study said that the average couple will need $285,000 for medical expenses in retirement. And that's excluding long term care. And couples sometimes just don't take that high a figure into account. Also, financially supporting adult children and grandchildren. A lot of people are very happy to help their children and grandchildren and just give little bits of money here and there. The trouble can be that those little bits of money, when you take it collectively add up to a lot more than people expect.
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And then retirees should be careful about which accounts they draw from because it could push them into a higher tax bracket.
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So when retirees have tax sheltered and taxable accounts, they often withdraw exclusively from their taxable account first. But the problem is is that doing that could bump the retiree to a higher tax bracket once required minimum distributions K it could also affect the retiree's Medicare premium.
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Does that mean that people should then go to perhaps their tax deferred plan first.
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It's possible. The really thing that they need to do is sit down with their tax advisor and figure out the different scenarios and run it both ways and see how it would work. And that's something they should be doing every year because some years it may be different than others. They might also want to consider converting some of their taxable account savings to Roth IRAs if they can. But it's going to depend on the situation.
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And then I'm sure around retirement and throughout their career people are pitched all sorts of investment ideas and great the next big thing in investing. And they really need to be careful about going after unrealistic investment pitches. I guess if it seems too good to be true, it probably is.
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Yes. And a lot of the retirees are really looking for that next the best return possible. And that makes a lot of sense. But chasing yields can really derail your retirement savings if you're not careful. Retirees also have to be careful about how much they're paying in fees for investment management. There are some kind of generalities. So clients with say 500,000 to 500 million in assets should really be paying in the range of 0.5% to 1% in advisor fees and keep custodial fees and ETF and mutual fund fees low if possible. If they're paying more, they really have to be able, they really have to rethink what they're doing because those fees can really eat into their returns and to their savings.
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Alright, so the lesson here is be sure to check in with a professional and a tax accountant to help you map out your retirement plans. But also check out Cheryl Winokur Monk's story in the Wall Street Journal where she outlines all these major missteps people take along the way and the way that you can avoid that and make your retirement more lucrative. And Cheryl's good enough to join us on the line. Cheryl, thanks for coming on the show.
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Thank you for having me.
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And that's yous Money Briefing. I'm JR Whalen in New York for
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the Wall Street Journal deal replaces fragmented Payroll vendors with one global system. No third parties. Hire, manage and pay teams in 150 plus countries. Operate like a local everywhere. Visit deel. Com WSJ.