Suze Orman Says To Avoid These Top Retirement Traps
Written by
Karen Doyle
Edited by
Zuri Anderson
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Personal finance guru Suze Orman has a lot to say about planning for retirement. She frequently identifies several traps that can ensnare those who are planning for or approaching retirement.
Here are four of the top retirement traps Orman wants you to avoid.
Taking 401(k) Withdrawals Early
According to GOBankingRates, new rules about early 401(k) withdrawals have made it easier to take withdrawals in the event of a hardship, but Orman advises against this. She recommends having an emergency fund to use for true emergencies and recommends starting with $1,000 and building from there.
Taking Social Security Too Early
Orman recommends waiting as long as you can to take your Social Security benefit — until age 70 if possible. The reason is simple: Your Social Security benefit grows each year from age 62 to age 70.
It’s important to note that you don’t have to collect Social Security when you stop working if you have the assets to support yourself without it. Or, even if you leave your full-time job, you may be able to work part-time until you can collect the highest possible benefit.
On her blog, Orman notes that many people need to retire before their full retirement age, or FRA. For those born in 1960 or later, FRA is 67. She asks readers, “Can you continue to work part-time and make at least that much after-tax? If you can, please do it — and don’t touch your Social Security until at least your FRA.”
Supporting Adult Children Instead of Planning for Retirement
Orman sees a lot of parents who are still supporting their children after they become adults, and she wants it to stop. In a recent post on the Orman blog, she said, “I sure hope you won’t let your adult kid freeload. That’s not generous to you or them.”
Orman suggests having your kids pay their own cell phone bill and car insurance at least. It’s okay to keep them on your plan or policy if that makes financial sense, but have them pay the difference between what it would cost without them on it and what you actually pay. She also recommends charging them rent.
“Doesn’t have to be a lot,” she said, “but it should be something. That’s a huge financial skill you’re teaching right there. If you want, you can tuck that money away, and when the time is right, you can return it to your kid to be used for the security deposit on a rental, or to help boost their growing emergency fund.”
Not Paying Off Your Mortgage
Orman recommends going into retirement with a fully paid-off home. On her blog, she elaborates: “For most households, a mortgage payment is the single largest monthly cost. Removing that cost is a gift in retirement, as it means you need less monthly income to cover your bills.”
She also cautions those approaching retirement to consider whether they can afford to stay in their home, even if it is fully paid off.
“(L)et’s remember you still have property tax and insurance to pay each year, as well as taking care of the home and property. And those costs tend to rise over the years,” Orman states. “At a not-high annual inflation rate of 3%, something that costs $2,000 today will cost more than $3,600 in 20 years.”
Orman also recommends evaluating your home in terms of your ability to age in place. She mentions accessibility issues if your home has a lot of stairs, and potential isolation if you are in a remote area without public transportation.
These traps can make your retirement more difficult than it needs to be, but identifying them and planning to avoid them can certainly help. Watch out for them, and you may put yourself in a better position to enjoy your golden years without worry.
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