Wealth Management Retirement Strategies to Reconsider
Personal_Finance / Pensions & Retirement Apr 04, 2013 - 01:15 PM GMTBy: DailyGainsLetter
John Whitefoot writes: From home repairs, to fixing cars, to crafts, publishing, and decorating—in a do-it-yourself culture, nothing is out of bounds. Thanks to low interest rates and underperforming assets with terrible returns, many who are on the cusp of retirement are looking after their own retirement plans in an effort to boost their retirement income. Meanwhile, those already in retirement are looking for ways to sustain their savings.
Self-directed retirement investing is a great way to manage a retirement nest-egg. And there is a wide array of resources and tools available to help retirees going it alone to make informed decisions, including: online calculators (which help determine how much you need to save for retirement), articles, webinars (instructional seminars conducted online), and online videos.
While the Internet is the easiest place to turn to for self-directed wealth management and retirement planning advice, you have to be discerning. Making the wrong decisions can be costly, and it could significantly undermine how comfortably you enjoy retirement.
What follows are two popular wealth management retirement strategies that are commonly offered to those entering their golden years—but that investors need to seriously reconsider.
1. Postpone Retirement to Increase Savings
Whether you’re retired or near retirement, your time is still worth something. You just have to decide how financially set you are and what your time in retirement is actually worth in dollars and cents.
A lot of people nearing retirement are at the peak of their earnings potential. And in some cases, they may not want to quit—even if they are in their late 60s and financially prepared for retirement. The reason many want to continue working is so that they can cushion their retirement savings. For some, this is a great idea; however, others may be over-valuing their earnings potential.
For example, you net $50,000 a year and decide you want to work an extra 12 months before you finally retire. While $50,000 is a lot of money, and assuming you deposit every cent in your retirement plan, the long-term pay-off may not be worth it.
Divided out over a 25-year retirement, $50,000 (simplistically) translates into an extra $166.00 per month. Is it worth delaying retirement for another year for $166.00 per month? There is no one-size-fits-all plan for when to retire. Depending on where you’re at with your retirement planning, you have to decide if it’s worth your time. For some, it most certainly is; but for others, it may not be.
2. You Need to Retire Debt-Free
Entering retirement without debt is ideal. But what about those who retire with car payments and a mortgage? Should they pay it off as quickly as possible?
Most people who have actively planned for retirement will, most likely, have planned out a monthly budget. If a portion of the expected expenses are going to a mortgage or car loan, they may be tempted to pay the debt off outright in an effort to lower their spending and interest charges.
While it may seem like a fiscally responsible move to make in the short term, it might not work out that way in the long run.
Retiring, by its very nature, means you no longer have a paying job. Not having a job means you may not be able to qualify for a new loan if you need one; or if you do qualify, it will probably be at a higher interest rate than what is being offered now.
In light of today’s low, low interest rates, it could be argued that someone retiring should get a new fixed-rate long-term mortgage for as much as the financial institution will allow to help with unexpected expenses and emergencies.
Or, if the idea of a new mortgage is a little too overwhelming, it might be worth it to consider paying off your current mortgage at the current rate and getting a home equity line of credit.
Even in retirement, time and peace of mind has value. And no two people look at it the same way. Just because conventional retirement planning wisdom says one thing, that doesn’t mean it fits your lifestyle.
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