Saving and Investing for Retirement: Surprising Mistakes People Make

By Randy Myers


Everybody knows where Americans go wrong in saving and investing for retirement. They start too late. They save too little. They invest too conservatively—or too aggressively. They borrow from their retirement accounts.

True enough. But as personal finance writer Martha Hamilton, now a Senior Editor at the International Consortium of Investigative Journalists, pointed out at the 2016 SVIA Fall Forum, Americans make a few other surprisingly devastating financial mistakes, too. According to financial planners she has interviewed, some of the biggest revolve around late-life divorce and dementia.

Late-life divorce is a rapidly growing trend, Hamilton observed, with the rate of divorce among people 50 and older doubling between 1990 and 2010. The obvious problem: a couple once planning to retire and live together end up living apart, significantly boosting their expenses as they try to maintain two households. Late-life divorce also can be wracked with emotion, leading some people to make less-than-reasoned financial decisions. It is not uncommon, for example, for a higher-earning spouse to be very generous in the settlement, to their own detriment.

In other cases, people just make bad choices. Hamilton recalled the story of one financial planner whose divorced client had fought hard to keep a $200,000 account, only to then go against the planner’s advice and add a girlfriend’s name to the account. “She’d just moved to where he lived, and they were to buy a house,” Hamilton said, “but she cleaned him out and moved home $200,000 richer.”

Hamilton said the chances for mishaps are many, especially if one spouse has been handling the family’s finances and the other knows little about them.

Hamilton advised anyone contemplating divorce not to visit a divorce lawyer right away, but to see a financial planner or accountant instead. She also said couples might benefit from hashing out—while times are good—how they would handle a divorce in the event their marriage later soured, perhaps going so far as to draft and sign a postnuptial agreement.

If planning for divorce seems unpleasant, dealing with the impact of a dementia diagnosis can be even more depressing, Hamilton said. Friends and family often miss the early signs of the disease, she said, and by the time it is diagnosed it can be too late to save an individual’s or a couple’s assets. One financial planner she had interviewed had a client suffering from dementia who was still day-trading.

“There’s so much to do immediately after the diagnosis that it leaves you exhausted,” Hamilton said. “Your first response is treatment, and coping. You may have to move the person with dementia to another home. This doesn’t leave you with enough energy to do what needs to be done with finances.”

The fallout of dementia can impact not only the person who has been struck by the disease, but also those who step forward to care for the patient. Hamilton cited a study which found that caregivers on average spend more than $5,000 a year of their own money trying to help a dementia patient for whom they are providing care. “Some go without meals. Others can absorb the cost more easily, but it can be really hard.”

Hamilton warned that people with dementia tend to develop problems managing money very early in the disease. They also become more susceptible to scams, like paying money to a predator pretending to represent the IRS. Some patients leave bills unpaid, or start donating excessive amounts to charity.

There is a lot of money at stake. The combined household wealth of Americans 65 and older is about $18.1 trillion, Hamilton said, and one in three older Americans dies with Alzheimer’s disease or some other form of dementia.

As with divorce, Hamilton encouraged people to plan ahead for how they would deal with a dementia diagnosis. This can include having a lawyer draft a will and a durable power of attorney that gives a trusted person power to take over healthcare and financial decisions if needed. It also can include discussions with a financial planner about retirement.

More broadly, Hamilton encouraged the education community to begin teaching financial literacy as early as grade school. Today, she said, “we don’t teach enough, and we don’t teach soon enough. As a result, things go in the wrong direction. If you understand compound interest, you’re more likely to do the right thing and start saving.”