Avoid These Money Moves in Your 70s

Entering a new phase of life often brings new learnings, experiences, and challenges. For a lot of people, life may slow down after turning 70, with potential health issues and decreased energy levels. Your expenses shift, with more frequent medical visits becoming common. Amidst these changes, it is crucial to make informed financial decisions. Mistakes at this stage can have significant consequences for your financial security and peace of mind.

This article can guide you through understanding and avoiding financial pitfalls in your 70s after retirement. You can also consider consulting a financial advisor for personalized guidance on how to prevent financial mistakes after retirement.

Below are the 9 worst money moves people make after 70 and how to avoid them:

1. Not accounting for inflation

Many people hold the misconception that inflation only impacts savings over the long term, typically spanning many years into the future. However, this is not entirely accurate. Inflation can erode the value of savings in a relatively short span of just 10 years. It is vital for 70-year-old retirees to understand this, as people in this age group may live well into their late 80s or even into their 90s. For them, inflation still poses a significant and immediate threat that requires proactive financial planning.

At the age of 70 and beyond, it remains crucial for you to invest in financial instruments that can provide returns that outpace inflation. You must consider investments, such as stocks, real estate, gold, and others, that can offer growth potential that exceeds the rate of inflation over time. This can help preserve the purchasing power of your savings and investments even if prices of essentials rise over the years.

Furthermore, you must also continually adjust your withdrawal strategies to account for inflation. If you have a fixed withdrawal rate every year, your withdrawals may not keep pace with inflation. This can potentially diminish the real income available for your expenses over time. It is important to adopt strategies such as inflation-adjusted withdrawals or using a portion of your investments to cover your expenses while allowing the rest to continue growing to mitigate the impact of inflation on your retirement finances.

2. Delaying Social Security further

Delaying Social Security benefits can significantly boost your monthly retirement income. While you have the option to start claiming benefits as early as age 62, delaying until age 70 can yield substantial increases in your monthly payments. According to current regulations, for each year you defer beyond your Full Retirement Age (typically around 66 or 67), you earn an 8% increase in benefits. For example, if you qualify for a $1,400 monthly benefit at age 62, waiting until age 70 could potentially increase it to $2,480 per month.

It is crucial to understand that this benefit increase stops once you reach age 70. Beyond this point, delaying further offers no additional financial advantages and may actually prove detrimental. Waiting too long to claim benefits means missing out on monthly income without gaining any extra benefits in return.

For those approaching their 70s, it is essential to make informed decisions regarding when to initiate Social Security payments. Extending the delay beyond age 70 could inadvertently strain your finances by depriving you of the needed monthly income. Therefore, it is advisable to plan your Social Security claiming strategy carefully to optimize your retirement income and financial stability.  Additionally, remember to enroll in Medicare at age 65, even if you choose to delay Social Security benefits, to ensure you have essential health coverage in retirement.  

3. Not planning Required Minimum Distributions (RMDs)

Not planning for RMDs can be one of the worst money moves after 70. RMDs are mandatory withdrawals that you must take from tax-advantaged retirement accounts such as 401(k)s, 403(b)s, traditional Individual Retirement Accounts (IRAs), SEP IRAs, SIMPLE IRAs, etc., starting at a certain age. The SECURE Act recently increased the age for starting RMDs to 73 for those who turn 72 years old in 2023 and will gradually increase to 75 beginning in 2033.

RMDs must commence by April 1 of the year following the year in which you turn 73 under the new rules. After that, these withdrawals must be taken by December 31 of each subsequent year. Failure to withdraw the total RMD amount on time results in penalties and taxes on the amount not withdrawn. However, if you miss a distribution, you can rectify it within two years by filing IRS Form 5329 along with your federal tax return.

The RMD amount is calculated using the IRS' Uniform Lifetime Table and is recalculated annually based on life expectancy factors that decrease as you age. This means you will need to progressively withdraw a higher percentage of your retirement account balance as you grow older. Neglecting RMDs can lead to unnecessary tax liabilities and penalties. Even if you do not immediately need the funds, it is essential to withdraw at least the minimum required amount to comply with IRS regulations. Proper planning and timely withdrawals of RMDs ensure that you maximize your retirement income while avoiding costly penalties and taxes.

4. Lending money to children or grandchildren

One of the things you should not do in retirement is lend money. Loaning money to children or grandchildren can be a significant financial risk in your 70s. While many retirees may feel compelled to help their family members with education expenses, emergencies, or debts, it is crucial to approach such situations with caution. Unless you are financially secure enough to part with funds without jeopardizing your present or future financial stability, it is advisable not to lend money, even if it is within your family.

While helping your children financially may benefit them in the short term, it can potentially strain your own financial situation. At 70, you need to prioritize your healthcare, long-term care needs, and ongoing expenses. People in their 70s are relatively active, enjoying leisure activities like travel and socializing, all of which require financial security. Lending money to others can deplete your savings and curtail these activities, which ultimately compromises your quality of life.

It is essential to understand that while your children or grandchildren have the potential to earn more or manage debts, your financial options at this stage of life may be more limited. Therefore, careful consideration and possibly seeking alternative ways to support your family, such as offering non-monetary assistance or exploring financial planning with a financial advisor, can be better options to help maintain both your financial health and your relationships.

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5. Not having an emergency fund

Having an emergency fund is crucial at any stage of life, especially during retirement. Emergencies can arise unexpectedly. While retirement may not bring financial threats like job loss, unforeseen events like damage to your home from a natural disaster or fire or unexpected health expenses not covered by insurance can still impact your financial security. Not having an emergency fund puts your retirement savings at risk. You may be forced to dip into your nest egg to cover these expenses, which can potentially deplete your savings meant for your long-term financial security. Therefore, setting aside some money specifically designated for emergencies is prudent.

The general rule of thumb remains the same, even in retirement. You must aim to save at least six to eight months' worth of your monthly expenses in an easily accessible, liquid account. This ensures you have funds readily available to handle any unexpected costs. Moreover, it is essential to be disciplined with your emergency fund. Maintaining discipline with your finances is crucial, regardless of your age. If you need to use funds from your emergency savings, the goal should always be to replenish them as soon as possible.

6. Keeping a concentrated portfolio allocation

Maintaining a diversified portfolio is crucial even as your risk tolerance decreases in retirement, especially in your 70s. While it is tempting to shift entirely to fixed income or cash instruments to minimize risk, this approach may limit the growth potential of your investments. As mentioned earlier, inflation remains a valid concern in your 70s and necessitates strategies to ensure your money grows adequately over time.

Investing in assets that can outpace inflation, such as stocks, becomes essential at this point. However, given the reduced risk appetite in retirement, it is prudent to adjust your portfolio allocation. For instance, if you had a 70% allocation to stocks and 30% to bonds in your 40s, you might consider a more conservative allocation, like 30% stocks and 70% bonds in your 70s. This balanced approach still offers growth potential while providing diversification and stability.

Personalized factors such as your savings, age, and specific risk tolerance should guide your exact allocation decisions. Consulting with a financial advisor can help you tailor a portfolio that aligns with your individual needs and financial goals in retirement while also striking the right balance between growth and risk. 

7. Not having a long-term care plan

Not having a long-term care plan can be a significant financial mistake after retirement. Without proper planning, retirees may need to sell assets or rely heavily on family for support in case of medical emergencies or long-term care needs. Long-term care insurance can play a crucial role in securing your independence and ensuring you receive necessary medical care. It provides coverage for expenses associated with staying in a retirement home, nursing care, or hiring full-time help at home. These costs can be substantial and distressing to your finances if you do not prepare for them well.

It is also essential to anticipate the possibility of a future illness or incapacitation and have a plan in place to manage these situations proactively. Preparing beforehand allows you to make informed decisions about your long-term care preferences and financial arrangements. Make sure to discuss your plans with family members, especially your children, to ensure that everyone is aware of your wishes and prepared to support you if needed.

8. Not taking professional advice

Hiring a financial advisor can be highly beneficial for dealing with the new changes you may encounter in your 70s. Financial advisors can assist you in creating a diversified portfolio that matches your risk appetite at this stage of life. They can ensure that your funds grow with inflation while maintaining financial stability. Consulting with a financial advisor can also help you plan well for your long-term care needs and craft a plan that aligns with your financial resources, healthcare needs, and personal preferences. This ensures you are prepared for potential future expenses without compromising your financial security and peace of mind.

Moreover, having a financial advisor provides reassurance that you are on the right track. In case of any issues or hurdles, you can consult the professional immediately and get them rectified. This guidance can help you avoid costly financial mistakes and make sure you make informed decisions to secure your financial well-being in retirement.

9. Falling for scams

Falling for scams is a significant risk you should avoid in retirement. Scammers often target older adults, knowing they may have accumulated substantial savings through years of hard work. Additionally, retirees may sometimes lack the technological know-how to recognize and protect themselves from online scams.

Internet threats, such as phishing emails, stolen passwords, and data breaches, can compromise your financial security. It is important to be wary of unsolicited emails, messages, calls, or people probing you for your personal and financial information.

To conclude

Now that you know the 9 worst money moves people make after 70, you can effectively avoid them and ensure a more financially secure retirement. Being prepared and informed can help you maintain financial safety and live your retirement in peace. Remember, careful planning and proactive management of your finances are key to enjoying a worry-free and fulfilling retirement.

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