4 Retirement Traps to Avoid

John Vogl

Being underwater with your home hinders your wealth.

1. Your house is worth less than you owe on it.

Fact: One out of 10 homeowners owe more than their home's value, a predicament that is called being underwater.

What you can do: Refinance through the federal Home Affordable Refinance Program for underwater homeowners. Find details at www.HARP.gov  

Get the bank to agree to a short sale, in which the house is sold for less than you owe and the balance is forgiven.

Wait it out and keep making payments until your home's value recovers. House prices in areas with a high percentage of underwater mortgages have been going up in recent years — by 5 percent a year in Cleveland, for example, and 10 percent in Las Vegas.

Consider renting it out. If you're retiring soon and moving, rent out the property until prices rebound. Demand has pushed rents up an average of 18 percent over five years.

2. You didn't save enough.

Fact: Nearly 30 percent of households ages 55 and up didn't have any pension or retirement savings as of 2013.

What you can do: Cut expenses and increase income; it's the magic combination. To find new part-time work, check out job sites such as Freelancer.com, Upwork.com and Retirementjobs.com.

Move to the South or the Midwest. These states — led, in order, by Mississippi, Indiana, Michigan, Arkansas and Oklahoma — have the lowest cost of living in the country. For instance, it's 37 percent cheaper to live in Jackson, Miss., than in Anchorage, Alaska — and it's warmer, too.

Consider a reverse mortgage that allows you to borrow against the equity in the house. The money is repaid when you move, you sell the house or you die. This is not a risk-free solution if you don't have much equity in your home, if you plan to move soon or if you don't have the income for taxes, insurance and maintenance.

John Vogl

Providing for your children depletes your resources.

3. Your kids are dependent on you for support.

Fact: Six out of 10 people age 50 and older financially support an adult child or relative.

What you can do: Set boundaries on how long you'll help out and under what circumstances.

Put loans in writing and charge interest. The IRS recommends an annual rate of at least 2.05 percent on three- to nine-year loans. If the loan is in writing and your child defaults, you can deduct it as a "nonbusiness bad debt" over one or more years on your tax return.

If you can't say no to your kids, let your accountant or financial adviser talk with them. He or she can decline your participation and also give your child useful advice.

4. Your retirement fund is losing money.

Fact: Thirteen percent of U.S. mutual funds lost money last year, reports Morningstar, an investment research firm.

What you can do: Check morningstar.com to see how a mutual fund compares with its benchmark. If it's been a laggard for three years, it may be time to cut your losses and sell.

Reduce your risks. An investment that is losing lots when the rest of the market isn't is too high risk. Review your holdings to see if you should shift to safer, more stable funds.

Take a deep breath and wait. If the investment is solid and it's the overall market that's declining, try to wait it out. Stocks have always bounced back over time.