Facts vs. Fiction in Retirement Planning, #259

From the truths about making large purchases in retirement to whether you really need to pay off your mortgage before you stop working, I’m sharing years of financial expertise to challenge a few retirement myths so you can make balanced, informed decisions. We’re talking strategies for charitable giving, clearing up misconceptions about reverse mortgages, and explaining why inflation may be your biggest risk in retirement. 

If you’re looking for practical advice on enjoying your savings while still planning for the long run, or if you want to protect yourself from financial scams and fraud, this episode is full of actionable tips to build your financial confidence for the years ahead.

You will want to hear this episode if you are interested in...

• [02:02] Leaving money to charity after death reduces estate value for taxes, but offers no immediate tax deduction.
• [04:17] Qualified charitable distributions and large donations can reduce taxable income, but are only deductible if you itemize.
• [08:11] Don't rush to pay low-interest mortgages; invest instead, as returns can potentially exceed mortgage interest rates.
• [13:03] Balance stocks with bonds and cash to manage risk and volatility.
• [10:10] Reverse mortgages can be a great idea in certain circumstances.

Navigating the Maze of Retirement Myths

Retirement often brings a sense of relief; finally, you get to enjoy the fruits of your labor! However, it’s also a period rife with uncertainty, especially when so much advice and information clash or seem outdated. In this episode, I’m tackling six of the most persistent myths retirees face. 

1. Myth: Leaving Money to Charity Is Best Done After Death

Many retirees assume that bequeathing assets to a charity upon passing is the most virtuous and tax-efficient way to give back. While this is always an option, leaving money to charity at death doesn’t net you a tax deduction; it simply reduces the size of your taxable estate. For the vast majority, it’s more impactful to consider gifting while alive.

There are several ways to make charitable giving work for you, including:

• Qualified Charitable Distributions (QCDs): Donate part or all of your required minimum distribution directly from your IRA, reducing your taxable income.
• Cash Donations: If you itemize deductions, you can deduct cash gifts, potentially even enough to tip you into itemizing territory if the gift is large.
• Gifting Appreciated Assets: Donating highly appreciated stocks or real estate can minimize capital gains and offer you an income stream.

2. Myth: Large Purchases Are Off-Limits in Retirement

Worried that buying a boat or funding a dream trip will doom your financial future? It’s a myth that large expenditures are always ill-advised. With a solid withdrawal strategy, say, 5% of a $2 million portfolio, making a one-time, reasonable purchase might slightly reduce your yearly income, but if balanced against market growth and overall planning, it’s rarely catastrophic.

Thoughtful, planned spending helps you enjoy retirement, so don’t deprive yourself unnecessarily!

3. Myth: The Less You Spend, the Better

Many retirees become excessively frugal, reluctant to draw down the savings they worked so hard to accumulate. But can’t take your money with you. While it’s wise to have a budget and withdraw at a sustainable rate, being too conservative may rob you of life’s joys, like travel, hobbies, or supporting family, while you’re healthy enough to enjoy them. The key is balance: know your withdrawal rate and revisit your plan regularly.

4. Myth: You Must Pay Off Your Mortgage Before Retiring

It’s comforting to be debt-free, but urgently paying off a low-interest mortgage could backfire. If your mortgage rate is 5% or lower and your investments are earning more, you could be better off keeping the mortgage and leaving your assets to grow. Plus, withdrawing large chunks from retirement accounts to pay down a mortgage could trigger higher taxes or Medicare premiums and leave you with less liquidity. Carrying a modest mortgage into retirement is not a financial failure; it may be a savvy move.

5. Myth: Reverse Mortgages Should Be Avoided

Reverse mortgages have a bad rap, often viewed as predatory or risky. While there were issues in the past, today’s products are much more regulated. If you’re 62 or older, a reverse mortgage can provide tax-free cash, letting you access home equity without moving. It’s especially valuable if much of your net worth is tied up in your home, or unexpected expenses crop up. Investigate carefully, but don’t dismiss this option out of hand.

6. Myth: A Market Crash Is the Greatest Retirement Risk

Market volatility grabs headlines, but inflation and the risk of outliving your money are bigger threats. The right asset allocation, mixing stocks for growth with bonds and cash for stability, is essential. Yet, don’t forget about inflation: stocks have historically been the best hedge. Also, financial scams are a growing risk; safeguard your accounts with strong passwords and authentication.

By understanding the realities behind these common misconceptions, you can build a strategy that sustains not just your finances but your lifestyle and peace of mind. 

Resources Mentioned

• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• Download my entire book for FREE 
• Charles Schwab
• Understanding Reverse Mortgages: Unlocking Home Equity for Retirement Income with Mitch Cooper, #242 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

 

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