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 While many baby boomers worked hard and saved diligently, some outdated or overlooked financial behaviors could quietly erode their long-term security.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.
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Playing It Too Safe
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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Treating Home Equity Like a Piggy Bank
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.”
Relying Too Heavily on Tax-Deferred Accounts
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.
“Switch from tax deferral to tax precision,” Clayton said. “Prioritize Roth conversions as soon as possible to insulate yourself from RMD exposure as best you can.”
Underestimating Healthcare Costs in Retirement
Many boomers make the costly mistake of underestimating how much they’ll spend on healthcare in retirement. Without proper planning, rising medical expenses can erode savings, increase debt risk and compromise long-term financial security.
According to Whitney Stidom of eHealth, an online insurance marketplace, the lack of preparation often leads to costly missteps, especially when navigating Medicare. One of the most common and expensive mistakes is choosing the wrong prescription drug plan.
With dozens of Medicare Advantage options available in many areas, it’s easy to pick one that doesn’t align with specific health needs, resulting in subpar coverage and higher out-of-pocket costs. Medicare plan benefits and personal prescription needs can both change annually, making regular plan reviews essential.
“People should take advantage of Medicare’s Annual Enrollment Period (Oct. 15 to Dec. 7) to review their coverage options and needs,” Stidom said. “For help, a licensed agent can help people understand which plans might save them money and still meet their coverage needs.”
Not Documenting Key Financial Details
Even with a solid estate or financial plan, failing to maintain an up-to-date, centralized record of assets, accounts and ongoing expenses can create costly confusion.
“All assets, wealth and even ongoing expense details should be documented so it is available for family when they would need it,” said Pravat Lall of SmartHeritance. “No matter what estate plans are in place, none of that would matter if there were not a centralized and up-to-date list of details available.”
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This article originally appeared on GOBankingRates.com: 5 Worst Money Habits of Boomers — and What To Do Instead
