Retirement brings excitement — you get to enjoy the fruits of decades of work. However, you’ve grown accustomed to working for your income. Living off your assets is a whole new financial world, bringing many new questions to answer and situations to plan for. No matter how much time you spend preparing for retirement, you’re bound to run into surprises. This article helps reduce uncertainty surrounding retirement and debunks five financial myths seniors should avoid falling for.
1. You can’t have debt in retirement
Being debt-free can feel great when you’re retired, but that doesn’t mean having debt is bad. It depends on your financial goals. For example, some seniors opt to invest extra money in the market or elsewhere instead of paying off their mortgage before retirement. This could be a good choice if you believe your investments elsewhere could earn a higher return than your mortgage interest rate.
2. Life insurance isn’t worth it
People often think of a life insurance policy as a tool for younger families to protect their spouses and children, so some may wonder, “is life insurance worth it for seniors?” The reality is that life insurance can be essential to financially protecting your spouse if you pass away and helping them pay off any remaining debts.
Life insurance can also help people with estate planning. The death benefit is tax-free, letting you pass more of your wealth to your heirs while avoiding taxes if they’re beneficiaries. Lastly, permanent life insurance policies allow you to build wealth through the cash value growth component. A portion of each premium goes into this component, growing tax-deferred at a certain interest rate that depends on the policy type and insurer. When the cash value grows large enough, you can borrow against it or withdraw from it. You can receive the cash value minus surrender charges if you surrender the policy.
3. You shouldn’t be invested in the market at all
Many seniors move their wealth into safer assets as they approach retirement to protect themselves against economic downturns. But seniors may not need to avoid the market at all costs. A smart investment strategy can help you enjoy more potential growth, helping your assets last longer. Again, working with a financial professional is a good idea here. They can help you determine the proper asset allocation to balance risk, growth potential, and stability.
4. You need to take Social Security as soon as you’re eligible
You can start taking Social Security at age 62 but can defer benefits until 70. The longer you wait for Social Security, the larger your benefit. If you need Social Security to afford retirement, consider working a few extra years instead. This helps you defer Social Security but could boost your benefit even more as Social Security is calculated using your highest 35 earnings years. So working longer during your peak earnings years could pay off.
5. It’s too late to make a difference in your finances
It’s never too late to improve your money knowledge and change your finances. For example, seniors can learn how to create and stick to a budget. This is a crucial skill in retirement because it helps you reduce expenses and live within your means, stretching your dollars further.
Seniors also have some retirement savings advantages. Several pretax retirement accounts, like 401(k)s and traditional IRAs, allow people 55 and older to contribute more than the regular limits with “catch-up contributions.” So, if you feel like you’re behind on retirement savings, you may be able to make up the gap.
Don’t fall for these financial myths
Retirement is unknown territory when you finally reach it. As such, it can be hard to tell myth from fact. First, it can be ok to have debt in retirement. Ideally, you should eliminate high-interest debt, like credit card debt, as soon as you can. But mortgage debt may be fine if you earn a higher return elsewhere.
It may also be a good idea for many seniors to stay in the market for more potential growth and defer Social Security as long as possible. Meanwhile, life insurance can be worth it for many seniors who want to protect their spouse and pass wealth down to their heirs. Lastly, it’s never too late to change your finances. Taking action and committing to personal financial literacy can make your retirement comfortable and enjoyable.