Posted by Judith Sanborn, CFP®, AIF®
Decade by decade, our costliest financial errors vary by age.
20’s: Playing it Safe
20-somethings have a long time horizon for saving their money and letting it grow. They can take more risk but studies show they typically do not. One reason is that they don’t know much about investing and therefore choose to be conservative. This is also the time that your human capital is greatest and allows you to be more aggressive with your investments. Impatience in the form of changing jobs; dropping out of school, etc can be costly to saving for the future.
30’s: Overwhelmed by Complexity
This decade is when people get married, have children, buy homes, etc. Financial decisions are more complex now for this generation. Too many choices on what to spend their money immobilizes some. Impatience again can be a factor. 30-somethings may want to replicate their parent’s lifestyle but don’t recognize that it took their parents many years to obtain what they have.
40’s: Misjudging Big Expenses
There are two big expenses during your 40s; the house and children. Some spend too much on a home and don’t work aggressively to pay off their mortgage prior to or at retirement. This is the time to consider restructuring mortgages to pay them off sooner. The second big expense is spending too much on children. Some financial planners recommend spending no more then 10% of one’s income on expenses for children. You need to recognize that you may have to care for aging parents while still supporting children.
50’s; Difficulty Catching Up
The realization that one may not have enough money put away for retirement suddenly hits in our 50s. We’re living longer and don’t want to admit this. The biggest risk we take is underestimating our life expectancy. The potential for us to live to 100 once we have reached our 50s is greater today then it has ever been. I mentioned human capital in your 20s; your human capital may begin diminishing in your 50s but also we may be able to leverage our human capital into our 70s. Especially in light of the fact that we could live to be 100; that’s 30 years of living on a fixed income.
60’s and Beyond: Not Delegating
Many of us don’t want to recognize our cognitive limitations. Before we face serious cognitive issues, we should have proper legal documents in place to allow a trusted family member or friend to step in if we are unable to handle our finances. An estate planning package should consist of your Last Will & Testament, a Durable Power of Attorney, a Living Will, and a Healthcare Surrogate form at a minimum.
If you don’t already have a financial advisor, this may be the time to consider hiring someone. You also will want to seek legal advice from an estate planning attorney.
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Source: Wall Street Journal