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.