Five of the biggest money mistakes retirees make

By David Pitt AP Personal Finance Writer Live long and prosper. We should all be so lucky to fulfill this blessing made popular in the television series "Star Trek." For retirees to maintain their desired lifestyle without a paycheck, possibly for decades, they need have a solid financial plan. They also need to steer clear of serious mistakes that could compromise their future income. Here's a look at some common pitfalls retirees encounter and ways to step around them to avoid financial disaster. 1. Helping children too much. Problem: Retirees with children or grandchildren are often too willing to help out financially; sometimes at the risk of their own well-being. Even though many baby boomers worked to put themselves through college and the experience developed good financial skills, they don't want their kids to struggle as much, says Wayne Copelin, president of Copelin Financial Advisors in Sugar Land, Texas. If you try to tell parents that it's a mistake to bail adult children out of credit card debt or help them with other financial mistakes, they get very mad, says Copelin. "They just won't hear that." Solution: Don't underestimate your longevity. Make sure you have enough money to last the rest of your life by laying out a financial plan. With a plan in hand, you can then determine how much you can afford to spend on children and grandchildren. If you don't take this step, you could very well run out of money and need to turn to your children for help. Also be very careful about co-signing loans because any default or late payments can hurt your credit rating. What's more, be aware that significant gifts could be considered taxable -- this year's limit is up to $13,000. Read the IRS rules at: http://tinyurl.com/4uncnxx . 2. Underestimating health care costs. Problem: One of the biggest pitfalls facing the retirees of the next few decades is unanticipated and unplanned health care costs. According to various experts, a healthy couple in their mid-60s will need around $300,000 to cover health care in retirement. A couple in their mid-50s should plan on spending around $500,000 in out-of-pocket health care costs. Most retirees will not have saved anywhere near that amount. The average 401(k) account balance for 55-year-old workers contributing for at least 10 years is $234,000, according to Fidelity Investments. Solution: One way to be prepared is to purchase long-term health care insurance, which can help cover the cost of home care or nursing home care, should the need arise. Couples in their 50s and in good health likely can buy a policy for an annual premium of around $2,500 if they shop for the best rates. Waiting until their 60s to buy is expensive with premiums rising to as much as $4,000 to $5,000 a year. To look at options for long-term care planning, check out this site provided by the federal government: http://www.longtermcare.gov/LTC/Main_Site/index.aspx . 3. Taking Social Security benefits too soon. Problem: No one knows exactly how long they'll live and these days it's very common to outlive our own expectations. About one in four 65-year-olds today will live past 90. One in 10 will live past 95. It's difficult to know how much to set aside for retirement. It's equally difficult to know whether to take Social Security as soon as one is eligible or wait a few years and get a fatter check. Solution: A worker at the full retirement age of 66 will be entitled to a monthly Social Security benefit of $1,000. That's reduced to $750 a month if benefits begin at 62, the earliest one can begin to draw checks. However, the same worker waiting until age 70 will get $1,320 a month. Deciding when to take benefits depends on age, health, how long you'll keep working, how much is saved and other factors. The Social Security Administration offers a benefits calculator at: http://www.ssa.gov/oact/anypia/index.html . 4. Failing to ask for guidance. Problem: Trying to handle retirement savings and investments without help. Solution: Many retirees and those nearing retirement who manage their own money often micromanage their accounts by watching the market's movement every day. They tend to pull money out when they get scared and keep it out until too late, missing any chance for recovery when the market picks up. This happened to millions of retirement savers as the market collapsed in 2008. Many 401(k) accountholders lost a third of their money. The reverse is also true as many put their investments on auto pilot. A financial planner can help make sure a portfolio is properly diversified and that risk is adequately reduced as retirement approaches. With such low interest rates today, it's difficult to make any money in cash investments, so a strategy of using bonds with varying maturities, mixing in dividend paying stocks, and looking at newly designed annuity products are important. 5. Investing too conservatively. Problem: Retirees want to protect their savings from losses, but also need to be sure their money is working for them. Investment returns are a vital part of their balance sheet. Solution: Retirement can last for decades. It's important to recognize that inflation will cause expenses to rise over time, all while retirees are living on a fixed income. Also it's a mistake to assume that total expenses will decline in retirement. With more leisure time, expenses can rise, and medical costs will certainly increase. This means that it would be a mistake for retirees to invest solely in fixed-income securities. Instead they need to continue to maintain a diversified portfolio, with a strategy that gradually limits their risk of losses as they get older. Published: Mon, Oct 17, 2011