Today we speak to Financial Mistakes People Make in Their 60s


The biggest mistake retired people make is giving up all their active income.   When we say active income, we mean the money you make through your labour or through a business you own.


Passive income refers to the income you get from NIS, a pension, or an annuity.  You can increase your active income by working more. But the only way you can increase your passive income is by getting higher rates of return on your investment.


When you give up your active income, two bad things happen:

  • First, your connection to your active income is cut off. With every month that passes, it becomes more difficult to get it back.
  • Second, your ability to make smart investment decisions drops because of your dependence on passive income.


Retirement is a wonderful idea: put a portion of your income into an investment account for 40 years and then withdraw from it for the rest of your life. Once you retire, you won’t have to work anymore. Instead, you will fill your days with traveling, golfing, going to the movies, and visiting the kids and grandkids.


But consider this: A retirement lifestyle for two, like the one I described above, would cost about $120,000 – $180,000 per year for at least 20 years ($10,000 – $15,000 per month).  How big of a retirement account do you need to fund that?


Let’s assume that you could count on $36,000 per year ($3,000 monthly) from NIS and another $60,000 ($5,000 monthly) from a pension plan.  To earn the minimum $24,000 balance in the safest way possible (from a savings account), you’d need at least $2.4 million because savings accounts only pay 1% at this time.


If you were willing to take a bit more risk and invest in mutual funds, you’d need about $600,000 assuming you could get 4% interest.


But middle-class T&T retire with an account in the $250,000 to $300,000 range. That’s where the trouble begins. To achieve an annual return of $24,000 on $300,000, you’d need to make 8% per year.  Getting 8% consistently over, say, 20 years may not be impossible, but it’s very risky—too risky.


Next week Part 2 of Mistakes after Retirement!


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