Luis Barajas walks through seven costly mistakes people make after 50: retiring without a plan, underestimating costs, quitting too early and losing Medicare eligibility, claiming Social Security at 62 instead of waiting until 70 for bigger checks, ignoring estate planning, taking on large debt, and making poor investment and tax decisions around retirement.
Welcome back. This is Luis Barajas, your financial life healer. Today I'm going to talk to you about what I'm preparing for 2025, and that's our Cinquenta workshops, which means that don't count the years, count your money and your blessings. And as I'm starting to prepare for the workshops, I'm writing down some financial mistakes that I've seen over the years people make, especially people over 50 years old. And the very first one is that they have not prepared a retirement financial plan before they retire. They want to do it sometimes after they retire, and it's a little bit too late because what happens, the reason why they come in is because they're depleting their retirement resources and they start getting a little desperate. So it is imperative that you sit down with a financial planner, come and see us to start doing a retirement plan. Second is not truly taking into account what your life and lifestyle will be in retirement and what happens right after retirement. People want to do things they haven't done in a long time, like take these wonderful long trips. But you forget how expensive it is to travel these days or go on vacations or they're trying to fix up their home and they see a lot of money going out. And again, they haven't sat down and say, okay, what is their lifestyle going to be? How is that going to reflect with their, the money that they're going to be spending and how long is that going to go to? So think about your lifestyle. What's going to happen when you do retire? Number three, quitting your job way too early and not qualifying sometimes yet for Social Security or Medicare, where sometimes you need that supplemental income or you need the Medicare to help you offset the expensive health care costs. That's really important. The other thing is claiming Social Security too early. Some people that I have want to retire at age 55 or are retiring at age 55, and they're using a lot of their retirement resources that they've saved through their 403B plan or their 401K plan. And so, you know, what happens is then they start, they said, I need some money. And they start taking the Social Security at age 62 when they technically could have worked a little bit longer and waited more time. Right. And sometimes that you get it at age 62. Every year that you wait, you're getting an 8% increase on your income in Social Security. I've got people who are taking, who started taking Social Security at age 62. They're still working. They're going to be working till they're age 70, not because they have to work, it's because they love what they're doing. They're really enjoying it and they don't really need that income and they're basically reporting it on their tax return and paying taxes on it. So that's another way to start planning and seeing whether. When do you really need to take Social Security Stuff that we're going to be talking about in our workshops, ignoring estate planning or postmortem planning. What's post mortem planning? So what happens when you die? Who's going to pay for the burial? You know, for them to bury you? What are the costs going to be? And we don't want to think about that. Nobody wants to think about death and nobody wants to think about people getting sick and passing away. But I recently had a friend who got cancer and died within a month. And we had been telling him that he's got to get his estate plan in place for probably two or three years and again, procrastinate to the very end. And the family right now is suffering because he did not create a, an estate plan. So, you know, you don't have to wait until your 50s to do that. If you've got children, a spouse, a home, work on that estate plan. Now the next thing that I see is the sixth thing is taking on debt. I actually see people getting closer to retirement, maybe five, six, seven years away, and they sell their home that they've been in a long time that's almost paid off and for some reason they want end up getting a bigger home with a big mortgage in their late, in their mid-50s. And so they're taking on too much debt. So now they're going to have to work longer because now not only have they taken on too much debt, they got mortgage debt, their property tax bill has gone up. Right. They had a home that they had purchased years ago for 3, $400,000. They sell their home and buy another house now for a million, a million and a half dollars. I know if you're in, this is, I'm on the west coast. So this is what we normally see. If you're in the, you know, Midwest, you're not going to see those, those expensive homes, but here you'll see that. And now they're paying property tax at one and a half to 2%. So those bills go up a lot. And they haven't thought through how long they're going to have to be paying these bills.
Not reallocating retirement Investments to dampen volatility. You know, when I'm sitting down and putting together a portfolio for somebody in their mid 20s and 30s and 40s, we can take a lot more risk, we can be a lot more aggressive. And if the market takes a hit, you know, we hit like a 2008, 2009, when the market's down 40%, we got plenty of time for the money to come back up. We're not worried about it. That's why we are aggressive with somebody's portfolio. But when you're in your late 50s and 60s, you really have to sit down and think about how you're investing your 401k, your 403b money and your Fidelity account. And so it's really important to have somebody give you that second opinion as to if you're basically not maybe taking out too much risk. Number six is poor tax planning on figuring out when you start taking out your retirement distributions. Remember, most of that is taxable. If it's in a Roth ira, it's not going to be taxable, but most people have a regular 401k. And when do you take it out? How much do you take out? If you're taking the money out before age 55, not only are you actually paying income on it, but you're also paying penalties. And I said 55. So people are going to sit down and send me a note saying, well, it's 59 and a half. You can actually take out money at 55 at what called equal and periodic distributions and avoid the penalty. That 10% penalty in California, we have an additional penalty of like two and a half percent. Again, these are the topics that we'll be talking on our cinquent workshops in 2025. And the last one is feeling desperate because they haven't saved timely for retirement and you still have time. There's, there's a lot of things that you can take a look at, cutting your budget, maybe downsizing, being more aggressive. Remember, when you're over 50, there are catch up provisions that you have in your retirement plan that you can start saving more money more aggressively as well, but you don't want to go into more aggressive investments. And that's what I see. That's one of the biggest mistakes that I see. So these are seven big financial mistakes that people make over 50. I can't wait to talk to you about these in more depth at our workshops for 2025, the Cuenta workshops. Talk to you soon.
