Retirement planning can be complicated, and most people cannot do it alone. Enlisting the help of an expert or doing your own research online can be a smart financial move, but it’s important to make sure you’re getting good advice.
Inaccurate advice costs Americans approximately $ 17 billion a year, according to a 2015 White House study. Therefore, while planning to retire, it pays to make sure you receive the most accurate and up-to-date information and ignore these three outdated tips.
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1. You have to pay your mortgage before you retire
Some financial experts advise paying off all your debts before you retire. While paying off high-interest debt like credit card debt, which can be incredibly toxic to your finances if you let it grow, is a good idea, lower-interest debt like a mortgage isn’t as dangerous. In fact, in some cases, paying off your mortgage before you retire could hurt you financially.
If you don’t have a ton of extra money available (because, let’s face it, who has it?), You’ll need to prioritize your various financial goals. When you plan to retire, that could mean choosing between investing more cash in your retirement account or paying off your mortgage.
To decide which one to prioritize, take a look at the interest rate on your mortgage and the rate of return you get on your investments. If you pay an annual interest rate of 4% on your mortgage, for example, while earning an annual rate of return of 6% on your retirement investments, you should probably invest more money in your investments. If you paid off your mortgage instead of investing, you could be losing valuable investment returns.
2. You won’t spend as much on retirement as you do now
The amount you expect to spend each year on retirement is an incredibly important number, because it is the foundation of your retirement plan. A common guideline is to assume that you will spend about 75% to 85% of your current income on retirement, but blindly assuming this is how much you will spend could be a costly mistake.
If you plan retirement assuming you will spend a fraction of what you are spending now, you will have trouble if your retirement costs end up being higher than you expected. And by the time you realize this error, it may be too late to do anything about it.
While planning for retirement, create a retirement budget to estimate your future costs as accurately as possible. You could end up spending less on retirement than you do now, but you could also spend more if you have several big vacations planned or plan to take on many new hobbies. By tailoring your retirement plan to your unique situation, you can ensure that you are as prepared as possible.
3. There is a “correct” age to start claiming Social Security
When it comes to choosing when to start claiming Social Security benefits, you have several options. You can start claiming as early as age 62, but your monthly checks will be reduced if you claim before your full retirement age (FRA), which is 66, 66, and a few months, or 67, depending on the year you were born . You can also wait until after your FRA to apply for benefits, and you will receive a bonus each month in addition to the total amount of benefits you are entitled to collect.
Some people say it’s best to claim benefits as early as possible at age 62, while others recommend delaying benefits until age 70. The truth is, there is no single answer for when the time is right to claim benefits, because it will depend on your unique situation.
If you have a healthy retirement fund and can subsist without much help from Social Security, claiming early might be the way to go so you can have some extra cash for expenses before retirement. On the other hand, if your retirement fund is missing and you need all the financial help you can get, it would be wise to delay benefits and win those bigger checks.
It is also a good idea to consider your health. If you hope to live a very long life, the bigger checks you will receive by delaying benefits can help you keep living comfortably, even if your savings are depleted later in life. But if you have health problems or another reason to believe you won’t enjoy a long retirement, claiming early will help you make the most of your benefits while you can.
Retirement planning is not easy, especially when not all tips are completely accurate. However, by removing some of the more outdated advice, you can ensure that your retirement plan meets your individual needs.
