Yahoo Finance 7 Money Mistakes Your Boomer Parents Are Making
If you have baby boomer parents, you might think they know everything about finances. After all, it’s likely that you learned most of your own financial education from them. But pretty much everyone makes financial mistakes, and your parents are no different.
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Although every person is different, boomers as a whole tend to be susceptible to certain financial mistakes more than others. If you’re paying attention, you can learn from these mistakes and avoid making them yourself. Here are some of the most common money mistakes your boomer parents may be making.
Prioritizing College Funding Over Retirement
One of the most common mistakes that boomer parents make is prioritizing the funding of their kids’ and grandkids’ education over their own retirement savings. The most likely reason for this is that many people don’t think of it as a “mistake” to prioritize their children. But financially speaking, it’s important to make sure your house is in order before you spend all your money on college funding.
Once you hit retirement, it’s hard if not impossible to get that money back, which could lead to a retirement that’s anything but relaxing. Even worse, your plan could backfire. As Roger Whitney, a certified financial planner (CFP) told AARA, “Whether it’s your children or grandchildren, take care of yourself first. If you don’t do that, you’re just going to wind up being a burden to them later.”
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Keeping Up With the Joneses
Boomers grew up in a time of relative prosperity, and some of them got caught up in the consumer spending pattern of “keeping up with the Joneses.” This is both a cultural and socioeconomic phenomenon in which people spend to “keep up” with the material possessions of their neighbors, even if they don’t particularly need or want them. For example, if everyone on your block has an exotic car, you’re likely to get one as well if you fall victim to “keeping up with the Joneses.”
Needless to say, falling into this pattern can lead to overspending, which is a cardinal financial sin.
Relying on Real Estate To Fund Everything
Boomers in particular tend to rely on real estate to fund their retirements. But their fondness for real estate is understandable. According to Federal Reserve data, the majority of U.S. assets come from real estate, and boomers control by far the biggest share of the country’s wealth, at 50%.
What this means is that most boomers have made a large percentage of their wealth from real estate, and they are very familiar with it. But having all of your money in a single investment, even one as seemingly stable as real estate, is a risky strategy. If you were to retire in the midst of a big recession or housing slowdown, you might not have nearly as much equity as you think.
Not Preparing for a Multi-Decade Retirement
Unfortunately, far too many boomers underestimate just how much money they’ll need because they end up living longer than they anticipate. At the time they were born, many boomers probably expected to live to about 72, but more than a fair share of retirees end up having multi-decade retirements, oftentimes past the age of 90.
If you retire at 65 and only have enough money to cover 10 years of retirement, you could end up living two decades or more in financial hardship. According to Boston College economist Gal Wettstein, most of us worry that the stock market’s volatility is our biggest retirement enemy. It isn’t, he said. The biggest worry is outliving retirement income.
Too Many Divorces
Divorce is one of the most traumatic experiences a human can undergo. But beyond the emotional strain, it’s also a recipe for financial disaster.
According to the Government Accountability Office, a woman’s household income drops by 41% after a divorce, almost twice that of a man. Both men and women will have to adjust their lives after a divorce, and for many it can take years to get back on their feet financially. The lesson for younger generations is that they need to understand both the positive and negative financial ramifications of entering into a marriage.
Being Too Risk-Averse
Perhaps due to their larger relative wealth, boomers have a reputation for being too risk-averse. This is supported by hard data from studies published by MDPI and others which show that boomers are indeed more risk-averse than millennials and Gen Zers.
Many boomers grew up in an era when “common knowledge” suggested that you should convert all of your risk assets, like stocks, into conservative choices like bonds and Treasury bills once you retire. While capital preservation is a good thing, it has to be balanced with enough growth so that you don’t outlive your income.
Relying on Social Security
Social Security is designed to be a financial backstop for retirees, but it was never intended to be their sole source of income. Boomers relying on Social Security to fund an exciting retirement might be distressed to learn that the average monthly payout to retirees was just $1,844.76 as of November 2023. Without supplemental savings, this puts the average retiree’s annual income at just over $22,000, which doesn’t go very far in most states.
There’s also the chance that Social Security benefits get cut in the future, with current projections suggesting a 20% shortfall in as early as 2032. Whether or not that comes to pass, relying on Social Security to fund your entire retirement is not a sound financial strategy.
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