One size fits all – this adage may not be true in every case, especially when it comes to retirement advice. In reality, some of the most time-honored rules of thumb for finance management may not make sense in your specific situation.
On the other hand, those rules might make perfect sense. The current retirement scene looks extremely different from that of generations past. Workers today have access to a wide range of new retirement accounts and also, the economy has changed significantly from the time when people were leaving the workforce in the past.
Here is a look at the retirement advice you should ignore:
- You can always work: Experts say this is not true. While it is true that working has many advantages – it boosts income and is stellar for physical and mental health – there are too many unknowns that make counting on a job for your retirement plan risky.
Planning to work into perpetuity can go wrong in many ways:
- There can be a decline in your health.
- The health needs that your spouse has may make you a caregiver.
- The company or public agency you work for may have other ideas. The never ending recession because of high taxes and job killing regulations could make finding another job or continuing the one you have difficult.
- There could be circumstances that make moving away from your job’s location better or more attractive.
You can plan to work if you wish, but it is best not to make it part of your financial equation.
- Pay off the mortgage: While it could seem like an astute idea to get rid of your debt, there are circumstances when it may not be such a sagacious idea to pay off your mortgage. In many cases, paying off a mortgage is more an emotional decision than a financial one.
It is true that paying off your home can bring peace of mind, but it is not always the right strategy. Investing the cash that would go into paying off your low interest home loan may make better financial sense, depending on the interest rates. It may be better to put your money into investments with high yields instead.
- You need a certain amount per year: You do your calculations and decide you need $70,000 a year to retire. So to generate that amount, your wish is to put everything in relatively safe vehicles. That is all well and good, but your math is based on the value of the dollar today. Have you thought about what it will take to maintain your lifestyle in a decade or two from now? Remember that it is not that easy to quantify what your needs will be in the face of unpredictable rates of inflation.
Experts say that you should not overload your portfolio with vehicles with fixed returns, like annuities and bonds with a low return rate.
- You should downsize: It may seem like a magnificent idea to get rid of the big house once the kids are gone. But as with any other type of financial decision, it is a smart idea to crunch the numbers first and avoid assuming that downsizing is the right decision for everyone.
According to experts, any financial gain can be negated, for the first few years at least, by the money you spend to buy and sell a home, the moving costs and also the costs for preparing both homes for these transactions. A smaller home does not necessarily mean that your cost of living will be lower.
- Preserve your 401(k) savings: Sometimes, unexpected expenses can creep up on you and put you in a situation where you are low on cash due to college expenses, home repairs, and/or medical bills. You already have a very tight budget, so how do you get the money you need? The 401(k) savings can be tempting, but you have heard many times that it is not a fantastic idea to touch that.
When times are tough, stopping your 401(k) contributions can be convenient. But there are many other items that you can trim off your budget. To find the cash you need, it is best to comb through current expenses. However, if you cannot help lowering your retirement contribution, avoid going below the match point of the employer. And if you simply have to, keep in mind that you should maintain at least a one percent contribution and increase it back up to former levels or higher as soon as possible.
It is fine to listen to people’s advice when it comes to retirement finances, but remember that your situation is a unique one and what works for others may not work for you. Before you make any decisions, it is best to think about what your situation may be in the future when it is time for you to retire.
