3 Retirement Myths Debunked – Barron's
When it comes to retirement, many believe that what was true for parents and grandparents still holds true today.
You may have seen your grandfather retire at the age of 62, collect pensions and social security for a dozen years, and think this scenario will be possible for your own pension. Or maybe your grandmother refused to let go of her depression in sparing ways despite having great savings and choosing to live the rest of her life without ever enjoying a penny of what she had scraped and saved.
But retirees or near-retirees who are stuck in the past can make serious mistakes that can ultimately cost them their long-term security.
Most previous generations did not spend their retirement years on exotic river cruises or exploring remote locations halfway around the world. And chances are they didn't live long enough to incur many medical expenses that threatened their frugal lifestyle.
The realities of a digitally based society that has put a greater burden on the individual to save for pensions have also changed some of what was previously true. Pensions are fading. Social Security's long-term viability is in question. Health care costs are expected to continue to rise.
“Don't just do something because your dad did it and your grandmother did it. Take a look at how things are today and make good decisions going forward, said Jeremy Shipp, founder of Retirement Capital Planners, a registered investment advisor in Glen Allen, Va.
Here are some retirement myths to be aware of.
You Should Pay Down Your Mortgage Loan Before Retiring
The notion of paying down a mortgage loan before retirement came from the Depression-era 1[ads1]930s. At that time, the mortgage loans were convertible and the banks were able to exclude the absence of immediate payment. The industry is not working that way right now, says Shipp. "You don't want to spend economics during the depression era in the digital age," he says.
Instead of accelerating mortgage payments, Shipp says retirees – especially those who pay interest at 4% or less – should consider what else they could do with the money, like to invest them and get a higher return. Retirees who pay higher interest rates say around 6%, who have five to ten years left on the mortgage, should consider refinancing for a 30-year fixed rate to take advantage of the falling interest rate environment, he says.
Read our recent cover story : How to choose your retirement home when there are more choices than ever
People approaching retirement may hesitate to take a new 30-year mortgage, says Shipp, but there can be benefits. For example, refinancing can reduce mortgage payments and give pensioners more access to liquidity that can be used for other expenses or for investment. Also in terms of inflation, the real cost of housing falls over time. Even for retirees planning to relocate in a few years, refinancing can free up cash that can be used to help them relocate or do other things they want to do, he says.
Divorce Won't Affect Your Retirement
Most people think they won't get a divorce when they're 60 or 70, but that's not true for an increasing number of people, according to senior owner Haleh Moddasser, president and chief counsel at Chapel Hill , NC, Office of the Wealth Management Company Stearns Financial Group.
People live longer and healthier lives, and with greater life expectancy, a retirement life that used to last 10 to 15 years has been for 20 to 25 years. Given this reality, she says, more people in unhappy marriages are considering their choices.
“Boomer is the first generation of people to settle for gray divorce. Her parents and grandparents did not do this, she says.
Read more : Don't Let 'Gray Divorce' Derail Your Retirement
Moddasser's concern is that many people – especially women – consider it too heavy to have a certain level of total assets for financial Safety. She works closely with a number of older women who are thinking of leaving their husbands, helping them understand their finances, and discussing, for example, the benefits of long-term care, continuing to maintain life insurance with their spouse, if possible, and continuing to work as a means to financial support, if necessary.
Some women are afraid they won't be able to work in the 60s and 70s, she says, but that has also changed because of technology. The Internet has allowed people to showcase their talents later in life, says Moddasser. "It provides opportunities for them not to be grazed."
People spend less when they retire
Many retirees do not have mortgage payments, commuting costs and expenses related to the maintenance of a business wardrobe. But when other expenses like travel, extra leisure activities and health care are incorporated, most times you end up spending as much in retirement as they did when working, says John Iammarino, president and founder of Securus Financial, a wealth management firm in San Diego.
He offers the example of a 60-year-old client who plans to retire next year. She and the husband no longer have a mortgage loan, but the money they paid for it will be used to pay for medical expenses, Iammarino says. As soon as the wife retires, she has to dedicate $ 1,200 a month – at current costs – to the health care system over the next five years until she is eligible for Medicare. On top of that, she and the husband also have to pay around $ 250 a month for the man's Medicare. People live longer and have increased medical costs. When you add to it, the costs get pretty heavy, he says.
Read our latest cover story : How Children Can Destroy Your Retirement Life – And How to Be Sure That They Don't home, and gifts for children and grandchildren. All of these things and more have the potential to eat through retirees in cash at a faster rate than before leaving the workforce, says Shipp of Retirement Capital Planners.
Retirees have more time on their hands and the ease of buying things online, along with being bombarded by digital advertising, can cause them to burn through cash if they are not careful. "A few purchases a week can add up pretty quickly," he says.
