Even the most battle-tested budget warrior might be making money decisions based on bad information, according to results of a recent survey. Charles Schwab interviewed 998 people to discover their biggest financial misconceptions. A large number of them believed common money myths. In fact, those who described themselves as “savvy” actually were more likely to believe the myths. Because it’s dangerous to not know what you don’t know, here are nine common money myths.
Myth No. 1: A will guarantees your property and money will be distributed the way you wish. Unfortunately, 91% believed this. However, 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 them to ensure you don’t leave assets to someone you didn’t intend, such as an ex-spouse.
Myth No. 2: You shouldn’t have any debt when you retire. Differentiate between “bad” and “good” debt. No credit card debt is a good goal, but you shouldn’t pay off a low-interest mortgage or student debt at the expense of saving more for retirement.
Myth No. 3: You can always shore up your income in retirement by getting another job. This is easier said than done for a number of reasons, including declining health and the erosion of marketable skills. Only 4% of retirees end up getting another job, despite 39% of those surveyed indicating they plan to work after they retire.
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 76% higher.
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, Schwab says the ideal age for purchasing long-term insurance is between 50 and 65.
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. Borrowing from a 401(K) should be a last resort, otherwise you’re putting your retirement savings at risk. White Sands FCU offers other low-cost loan options that won’t derail retirement savings.
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 2014 anyone older than 50 can contribute an additional $5,500 in catch-up IRA (individual retirement account) and 401(k) contributions.