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
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
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.
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.
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.
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.
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.
