Mid-Life Money Myths
Between 40 & 60? Beware of these common financial mistakes.
Between the ages of 40 and 60, when many people increase their commitment to investing and retirement saving, it is easy to fall prey to common financial blunders and money myths. Are any of these behaviors or assumptions creeping into your financial life?
Myth One: I need to invest with more risk. If you are behind on retirement saving, you may find yourself wishing for a “silver bullet” investment or want to play catch up by allocating more of your portfolio to today’s hottest sectors. However, the closer you come to retirement, the fewer years you have to recover from losses, and the argument for diversification and dialing down risk grows stronger. In the long run, the consistency of your retirement saving effort should better help your nest egg grow.
Myth Two: I should focus solely on building wealth instead of protecting it. Many people begin investing in their twenties or thirties with a tendency to play the market in one direction-up. As taxes lurk and markets suffer downturns, it is crucial to play defense and move from simply investing to an actual strategy.
Myth Three: Saving for retirement is a secondary priority. While this may be true for a short period due to fate or bad luck, you should try to keep retirement at the top of your priority list. It may be tempting to put saving for college first. But remember, students can apply for financial aid while retirees cannot, and if you outlive your money, they may have to take you in later in life.
Myth Four: Paying off my home loan takes precedence over paying off other debts. While fully owning your home is a great goal, you may end up picking up crippling consumer debt along the way. It is usually better to attack credit card debt first, freeing up money to invest, save for retirement, build a rainy day fund, and yes, pay the mortgage.¹
Myth Five: Taking a loan from my workplace retirement plan is a good idea. By taking this loan, you are drawing down your retirement savings, invested assets that would have capability to grow and compound. You will also probably repay the loan with deductions from your paycheck. It is also likely you will have to repay the full amount within five years, and if you are fired or quit, the entire loan amount will likely need to be paid back within 90 days. If you cannot pay back the entire amount and you are younger than 59½, the IRS will characterize the unsettled portion of the loan as a premature distribution from a qualified retirement plan, fully taxable income subject to early withdrawal penalties.²
Myth Six: My peak earning years are straight ahead. Although conventional wisdom says yearly earnings peak in your fifties, this is not always the case. If you work in physically rigorous occupations, your earnings may plateau after age 50 or even age 40. Also, some industries are shrinking, offering middle-aged workers much less job security.
Myth Seven: I don’t need to worry about my emergency fund. Your emergency fund should be growing gradually to suit your household, which may need greater cash reserves now than before. If you do not have money stored away for a rainy day, do what you can now to build up so you don’t have to resort to predatory lenders for expensive loans. Insurance also gives your household financial stability. Disability insurance or life insurance-from a simple final expense policy to a permanent policy which builds cash value-offer other forms of financial support. However, be aware of exclusions and limitations.
If you need help to make sure you’re not making decisions based on myths such as these, give us a call. We’d be happy to help you avoid some of the most common mis-steps.
There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to affect some of the strategies. Investing involves risk including possible loss of principal.
This material was adapted from information prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 – nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ [6/25/15]
2 – tinyurl.com/oalk4fx [9/14/14]