Even in retirement, bad money habits can cost more than people realize. While many baby boomers worked hard and saved diligently, some outdated or overlooked financial behaviors could quietly erode their long-term security.
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From clinging to the wrong assets to underestimating healthcare costs, here are five of the worst money habits boomers should break — and what to do instead.
Keeping 70% to 80% of retirement savings in low-yield accounts, such as certificates of deposit (CDs) or cash, can severely limit long-term income, especially when inflation outpaces returns.
“I’ve seen retirees with close to a million in CDs earning $30,000 annually when a balanced and well-diversified portfolio could generate $100,000 without touching the principal,” said Liam Hunt, director of research at IncomeInsider.org.
Hunt said boomers often equate conservative investing with safety, but in a low-rate, high-inflation environment, playing it too safe can actually shrink their purchasing power and undermine long-term financial security.
“I recommend rebalancing portfolios to a safe 40% to 50% allocation in stocks, even in retirement,” Hunt said. “Longevity risk is a far greater concern for boomers than market risks.”
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For boomers with limited retirement savings, home equity often represents their largest source of wealth. However, boomers tend to tap their home equity for big expenses, such as a child’s college tuition or a second home, which can harm financial stability.
Robert R. Johnson, Ph.D., a finance professor at the Heider College of Business at Creighton University, said boomers can protect their home equity by regularly following a simple investment strategy.
“People should invest in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down or sideways,” Johnson said. “Dollar-cost averaging into an index mutual fund or ETF (that mimics a benchmark index like the S&P 500) is a terrific lifelong strategy.”
Many boomers rely solely on tax-deferred accounts, such as traditional IRAs or 401(k)s, unaware of the future tax burden that can result from required minimum distributions (RMDs).
D’Andre Clayton, co-founder of Clayton Financial Solutions, said boomers should shift from simply delaying taxes to making strategic tax moves in retirement.
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