Women

Here’s how to steer clear or change course

K. Mendelsohn says a simple mistake has made her forever wise to the big impact small oversights can have.

Mendelsohn was a 36-year-old college administrator, and her children were 4 and 7, when her husband, Harold, died of a heart attack at age 40. She soon learned that he hadn’t updated the beneficiary designations on his retirement plan after they married. In fact, the named beneficiaries-his parents- planned to claim the $100,000 account.

7 Money Stumbles To Avoid

7 Money Stumbles To Avoid

 To wrest the inheritance from her in-laws, Mendelsohn had to sue to prove her husband had intended to name her as efficacy. She ultimately got a court order awarding her the money. Mendelsohn now warns everyone she knows to check their beneficiary designations regularly.

“It was a difficult trauma to deal with in the first place, but to have to worry about my kids’ future was scary, awful,” recalls Mendelson, now 57 and a resident of Dix Hills, N.Y.

Nobody’s perfect

Everyone makes money mistakes, and some might be unavoidable when people are in financial distress. But missteps or miscalculations can cost you a lot over the long term or inadvertently hurt your family when you’re gone. When we recently conducted a nationally representative survey about American’s money habits, we found several common and insidious blunder that could cause significant financial, and sometimes emotional, pain. Here’s where we found Americans are tripping up:

Everyone makes money mistakes, and some might be unavoidable when people are in financial distress

Everyone makes money mistakes, and some might be unavoidable when people are in financial distress

Not updating wills and beneficiaries.

Eighty-six percent hadn’t updated their wills or other estate-planning documents within the previous five years.

 
Should updating wills and beneficiaries.

Should updating wills and beneficiaries.

Not sharing information with family.

In only 30 percent of households did both spouses know major details about the family’s finances and where to find account information.

Messing up on 401 (k) s.

About two-fifths of respondents set aside 5 percent or less of pretax income in defined-contribution retirement accounts, most likely missing out on free employer matches. Niety-one percent never reviewed fund expenses within their plans, though those expenses play a major role in investors’ returns.

Underinsuring.

A mere 36 percent of homeowners had purchased extended coverage on their home overs insurance that covered the full replacement value of personal property. Only 20 percent of survey respondents had umbrella coverage to protect them from liability lawsuits.

Only 20 percent of survey respondents had umbrella coverage to protect them from liability lawsuits.

Only 20 percent of survey respondents had umbrella coverage to protect them from liability lawsuits.

Not planning for emergencies.

More than 70 percent said they didn’t have an emergency fund that could cover three to six months of living expenses; 77 percent had not stored important financial information and contacts in a secure place.

 Not checking credit reports.

Four out of five respondents don’t’ review their three credit reports at least once a year, though they’re free and indispensable.

Mismanaging debt.

Almost one-fifth of those surveyed had revolving debt on credit cards of at least $10,000. Of the almost one-quarter of respondents who were in debt for education loans, 47 percent had taken more costly private loans.

In a recent online survey of our Money Advisor subscribers, 62 percent reported having made a big financial mistake at some point in their lives.

In a recent online survey of our Money Advisor subscribers, 62 percent reported having made a big financial mistake at some point in their lives.

If you’ve stepped in one of these potholes, you’re not alone. In a recent online survey of our Money Advisor subscribers, 62 percent reported having made a big financial mistake at some point in their lives. Of those, 63 percent said the error cost them $10,000 or more. Even financial experts strike out sometimes.

But as you’ll see below, you can correct your missteps or at least mitigate the damage they can cause.

1.    Not updating your beneficiaries.

Mendelsohn’s story may be extreme, but it’s not unique. E. Blayney, a certified financial planner and consumer advocate for the Certified Financial Planner Board of Standards in Washington, recalls an older man whose son died before him. The man never updated his will to include his son’s widow and child – his grandchild. When he died, that branch of the family lost out. Tales of first spouses inadvertently left as beneficiaries on insurance policies or retirement accounts are common.

Tales of ex-spouses getting the 401(k) and other accounts are common.

Tales of ex-spouses getting the 401(k) and other accounts are common.

Eighty-six percent of our survey respondents said they hadn’t created their will and other estate-planning documents or updated them within the past five years. But even if nothing has changed in your life, every year you should check your beneficiary designations in your will, insurance policies, investment accounts, and retirement plans such as 401(k) s, says William Losey, a certified financial planner in Wilton, N.Y. he has seen cases where employers or investment companies have merged or updated computer systems and lost beneficiary designations. “Don’t put the onus on your financial-services company to have the correct data,” he says.

Make sure the beneficiaries you’ve named in your will are coordinated with those you’ve named for other assets such as your retirement accounts and life insurance, says Benard A. Krooks, an estate and elder-law attorney in New York City and Westchester County, N.Y. “The will may leave everything to the kids equally, but the 401(k) may name one particular person as beneficiary,” Krooks says. “That is the cause of a significant number of disputes after people die.”

By the numbers:

26% percentage of survey respondents paying post-high school education costs within the past 24 months who were 45 or older. If that’s you, avoid dipping into retirement savings for those expenses.

 

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