Most Common Mistakes Baby Boomers Make After Retirement IRA 401k Rollovers

January 21, 2013

Retirement planning does not stop at the point of retirement. Retirees must have a plan post-retirement that reflects their investment preferences, situation, and risks. Mistakes can be made during the working years but also during the retirement years. Some of the most common mistakes made after retirement reflect poor execution concerning tax treatment, income needs, and risk management, Social Security  and rolling over an IRA.

One of the most common mistakes made by baby boomers is not rolling over their employer-sponsored 401(k) plans to an IRA. IRAs allow retirees to consolidate their investments, oversee them more closely, and may reduce their expenses. IRAs also typically allow for more investment freedom. Retirees’ investment choices are often restricted in their employer’s plan while they are not in an IRA. Another common mistake is not optimizing the tax treatment of the retirement plan. Retirees are in the same tax bracket or a higher one than they were before retirement so rolling over to a Roth plan from a Traditional plan may actually be harmful. The opposite may be true, however, so choosing the correct tax treatment for a retirement plan is extremely important. Furthermore, retirees are required to take IRS minimum required distributions from their plans, but not with Roth IRAs, when they reach the age of 70 1/2. Retirees mistakenly fail to take distributions from their plans causing them to pay an 50% IRS penalty tax on the amount of the minimum distribution. Another common mistake made by retirees is being reactive instead of proactive. Not implementing strategies to help protect income from inflation, health costs, volatility, and other risks can cause undue risk and possibly decrease retirees’ standard of living. Taking Social Security too early is a common mistake as well. Once a retiree is eligible for Social Security, it does not mean that the retiree has to start collecting from it. In fact, delaying payments from Social Security actually increases the amount of income received later.

The most common and gravest mistake made by baby boomers after retirement is not seeking the help of a financial advisor. The professionals at Mundo Financial Services are knowledgeable about the nuances of different investment services and how stocks, bonds, insurance, Social Security, and other financial instruments adrress retirement goals. A financial advisor, like Mike Mundo can help baby boomers with strategies to work toward reducing their investment expenses and tax liabilities. Circumstances change so financial advisors are essential for implementing these strategies to work toward mitigating the effects of inflation and other financial risks. Mundo Financial Services is available to help retirees navigate the investment landscape as conditions and situations change during retirement. Most importantly, seeking the help of one of our financial advisors can help retirees to avoid making the other common mistakes previously outlined.

 A plan participant leaving an employer typically has four options (and may engage in a combination of these options), each choice offering advantages and disadvantages.   • Leave the money in his/her former employer’s plan, if permitted; • Roll over the assets to his/her new employer’s plan, if one is available and rollovers are permitted; • Roll over to an IRA; or • Cash out the account value.