Part of knowing how to manage your finances involves clearing up some misconceptions about money. See how many of these common money myths you believe.
Myth No. 1: Having a will guarantees your property and money will be distributed the way you wish.
If you’ve named beneficiaries on financial accounts, such as your IRA (individual retirement account) or insurance policy, those designations override any will. You’ll need to update the financial accounts to ensure you don’t leave something to someone you didn’t intend, like an ex-spouse.
Myth No. 2: You should have no debt when you retire.
Differentiate between “bad” and “good” debt. Paying off credit card debt is a good goal – that’s ‘bad’ debt. However, a low-interest mortgage is ‘good’ debt – it helps you build wealth. When you sell the house, the equity you earn on the house will supplement your retirement income.
Myth No. 3: You can get another job after retirement.
This is easier said than done for many reasons, including declining health and the erosion of marketable skills. According to the Bureau of Labor Statistics, in December 2022 only 19.3% of the labor force was over 65. Even pre-pandemic, the percentage of workers over the age of 65 rose no higher than 21%.
Myth No. 4: Everyone should have life insurance.
Life insurance is necessary only if you have disabled or young children or a spouse depending on your income, or if you own a small business.
Myth No. 5: You should take Social Security when you turn 62.
Not unless you really need it. If you wait and take Social Security at age 70, your benefits will be over 80% higher, depending on your current income. If you want to see the difference in the amount you’ll receive if you retire at 62 versus 70, use this calculator.
Myth No. 6: You should buy long-term care insurance in your 40s when premiums are lower.
The premiums will be lower, sure, but you’ll be paying them for a longer time. If you’re healthy, the ideal age for purchasing long-term insurance is between 60 and 65, according to AARP.
Myth No. 7: Retirees should keep their money out of the stock market.
If you anticipate a long retirement, keeping a portion of your savings in the stock market can help you keep pace with inflation.
Myth No. 8: You should borrow from your 401(k) if you need a loan.
Only if it’s an emergency, otherwise you’re putting your retirement savings at risk.
Myth No. 9: Your 50s are too late to make a difference in your financial future.
If you don’t retire until your late 60s, you could have almost two decades left to save. In 2023, anyone older than 50 can contribute an additional $7,500 in catch-up 401(k) contributions.
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