While baby boomers are seemingly the last generation to truly have it all regarding finances, some are still dealing with serious financial regrets.
From sweeping lifestyle changes to unforeseen economic crashes, many boomers have found themselves facing financial situations they never saw coming.
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We spoke with several boomers who shared their biggest financial regrets, and Derek Mazzarella, a CFP with Gateway Financial Partners, and the author of “Just Retire Already”, offers some advice to help others avoid or handle these situations.
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Not Waiting Out a Recession
Bev Jackson, a retired New Mexico-based accountant, was pleased to learn she could take out a reverse mortgage in her 70s, essentially a kind of “loan” where you get a cash payout off the equity in your home. She took out $75,000 to renovate her beautiful North Carolina mobile home on a small parcel of land, which she got for a good price.
Jackson used an online company for her reverse mortgage and never sat down with someone in person to go over all the nitty gritty details. All would have been fine if she’d just stayed where she was.
“But I decided I needed to retire to Florida and left this house. I found out that’s a no, you can’t leave the house unless you repay the loan,” she said.
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Now, she owed the company the money she’d taken out, and her only way out of the situation was selling. Worse, 2008’s Great Recession swept through and impacted the home’s value. She was able to sell to a friend at below-market value but lost everything she’d invested in it.
“If I had waited, I could have sat through the recession and sold it for more than I paid. I lost everything, both houses, those renovation funds because I gave that house away for a lot less than it was worth,” she said.
Mazzarella said typically doesn’t recommend reverse mortgages precisely because of reasons like this.
“You lose some ability to have control over the house because essentially now the bank owns the house again up to a point,” Mazzarella said. “So I’d just be wary of knowing exactly what you’re stepping into when you set up a reverse mortgage.”
Spending Frivolously
In her highest income-earning years, Jackson worked as an accountant and then a consultant, earning $125 per hour and living a very good life. She described herself as a “spendthrift,” acting as if life is short and she spent like it. She bought beautiful things, a nice home, a car and so on, putting most on credit cards and none of it into retirement savings accounts. Though she always paid off her cards, she was spending instead of saving.
“I regret this personality of mine,” she said. “I wish I had as much respect for my own money as for other people’s. I wish instead of buying things I wish I had invested.”
Jackson lamented that she’d never learned anything about finances from her parents and feels as though she’s currently living the repercussions.
Not Investing in Retirement Accounts
Because Jackson was self-employed for many years, she didn’t have an employer-sponsored retirement account and never opened a self-employed version, either.
One of the biggest mistakes Mazzarella tends to see is business owners relying on selling off their business as their retirement plan and forgoing retirement accounts. This often doesn’t work out.
Self-employed people can open SEP IRAs, Roth IRAs and even a solo 401(k) plan.
“So you have a variety of vehicles as a self-employed person to save for retirement. You just don’t get the match that your employer would be giving you if you had a regular job.” Mazzarella said.
Mazzarella explained that retirement account benefits far outweigh simple savings account perks, especially since Social Security is only meant to cover around 30% to 40% of your pre-retirement income.
“You need to cover the other 60% by yourself. So having that ability to typically save over time is going to be very important,” Mazzarella said.
Retirement accounts come with various tax benefits, along with a higher interest rate on gains because it’s invested in the stock market.
Jackson now lives a much smaller life than she used to, with Social Security as her primary income along with a little bit of freelance income from writing, editing and art. Recently, she needed pricey hearing aids, going into a debt consolidation program to pay for it.
“The kind of life I lived, I never thought I’d wind up like this,” Jackson said.
Taking Social Security Too Early
Claudia P., a Michigan-based writer and former event manager, feels her biggest regret was taking Social Security too early, as soon as she turned 62.
“I was retired, not because I wanted to be, but because I’d quit a job I loved so my husband could take a higher-paying job in another city,” she explained.
At the time, it seemed like a good idea. Little did she know they’d divorce three years later.
“I could sure use that extra cash every month if only I’d waited. One never knows what the future holds,” she said.
She ended up taking home around $400 per month less than if she’d waited to take it at age 70. Now, she lives on around $1,250 per month in Social Security income, supplemented with part-time work.
She regrets not having done her research to see what the difference in benefits would have been.
“I would say to anybody out there, unless you are going to starve or can’t pay your mortgage or rent, wait. It makes a big difference,” she said.
She’s since moved back to Michigan, from pricier California, where she has family and the cost of living is significantly cheaper (other than higher property taxes).
In general, she said retirement “is for the birds,” adding, “If you love what you’re doing, you should work as long as you can.”
Leaving Money On the Table
Mazzarella said it’s quite common for people to take Social Security early, with around 41% of people take it at age 62.
“You’re essentially leaving money on the table because every year you delay it up to age 70, you’re essentially increasing your future payments by 8%.”
He recommended trying to have enough cash or retirement assets available to withstand the first couple of years of retirement without drawing on Social Security.
In general, Mazzarella suggested people map out their retirement before they get there so they don’t wind up with these or other regrets.
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This article originally appeared on GOBankingRates.com: Boomers Share Their Biggest Financial Regrets (So You Can Avoid Them)
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