Suze Orman says these 5 financial mistakes to avoid if you want to live your best life in retirement
In tough times, personal finance expert Suze Orman will be the first to tell you that what you don’t do with your money may be even more important than what you do with it.
The host of the Women & Money podcast says many will regret tapping into their retirement funds to help with short-term financial problems when they eventually leave the workforce.
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“If you can’t pay your bills while you get a paycheck, how are you going to pay those exact same bills later in life if you don’t get a paycheck?” she said to Moneywise in one go interview.
“That’s when you retire. We live longer now. So the pension account has to be bigger.”
Here are five of her essential tips for avoiding mistakes that affect your future financial security — so you can protect your retirement nest egg during tough economic times and live comfortably in your golden years.
1. Don’t touch your 401(k) or miss Employer Comparison
If you have a 401(k) or other retirement plan through work, don’t leave free money on the table.
Make sure you deposit enough to receive the full matching contribution from your employer.
Orman says your company could throw in 50 cents for every dollar you contribute, up to 6% of your salary.
“Under these conditions, if the employee contributed $3,000, the employer would throw in an additional $1,500,” she says on Oprah.com. “Hi! That’s a guaranteed 50% return on your investment.”
With inflation still high and many Americans budgets tight, you may be tempted to borrow money from your 401(k). But Orman says this is an account not to be touched.
In a February blog post, she wrote, “I want to be clear: I still think you should do everything you can to never touch your retirement savings.”
Earning your 401(k) account can leave you vulnerable if you ever file for bankruptcy, Orman says, since 401(k) accounts are protected against bankruptcy and can’t be touched if you ever need to file for bankruptcy.
“So if you’re really in a terrible situation and you have all this debt, you’re under water with everything and you have to file for bankruptcy to get rid of that, you still have your retirement accounts,” Orman said in an interview with Moneywise.
WATCH NOW: Suze Orman warns cash-strapped Americans against tapping their 401(k).
2. Don’t retire for money for your home
A survey by mortgage banker American Financing found that 44% of Americans in their 60s and 70s are still paying off a mortgage. And 17% said they don’t think they’ll ever pay off.
“It’s not okay like this,” Orman blogged.
She urges people to retire mortgage-free for two reasons: to top up their retirement savings and to get out of debt — an albatross that even impacts mental health.
“If you’re going to live in this house for the rest of your life, pay off that mortgage as soon as possible,” Orman once told CNBC.
Without a mortgage, you’ll have more financial security in retirement, she says. So work until you’re 70, use any excess emergency savings, and do whatever it takes to pay off the house.
3. Don’t retire too early
During an episode of the Afford Anything podcast, Orman was asked what she thought of the FIRE movement. This is FIRE as in “financial independence, early retirement”.
Her blunt reply: “I hate it. I hate it. I hate it. I hate it.” – sparked a firestorm among FIRE believers at the time.
But she explained that it would cost a lot of money to retire at the age of 35, for example.
“They need at least $5 million or $6 million,” she said. “Really, you might need $10 million.” In their opinion, less would not be enough protection against a possible financial catastrophe, such as an expensive illness.
“You’re going to get burned playing with FIRE,” Orman told her interviewer.
Orman recently reminded her readers in a Blog post June 2022 that there are “no loans for retirement,” so it’s important that you save enough for retirement life you want
She also warned that “you cannot recover lost compounding”.
“Every dollar you don’t save in your 30’s, 40’s and 50’s is a dollar that cannot be earned. A $10,000 investment made by age 45 is worth about $32,000 by age 65, assuming a 6% annual return,” she writes.
“Invest that same $10,000 at age 55 and it will be worth less than $18,000.
4. Don’t take out a reverse mortgage in your 60s
According to multiple reports, reverse mortgage limits have hit an all-time high and are up 12% since 2022.
A reverse mortgage is a type of home equity loan for seniors, where you can get the money as a lump sum or in monthly installments.
The loan will be repaid with interest if you die or sell the house.
You can get a reverse mortgage from age 62, but Orman says it’s risky.
“I’ve never been a fan of reverse mortgages and never will,” she said of them Podcasts in September.
“I would never advise doing one in a million years.”
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In her view, it’s best to treat a reverse mortgage as a last resort for emergency money and wait as long as possible before going down that route.
In an interview with Moneywise, Orman emphasized the importance of emergency savings and what can happen if you are unprepared for your next financial emergency.
5. Don’t leave without a will
“Have you completed your estate planning? If not, you should reconsider,” Orman wrote on Oprah.com.
While Everyone needs a willmost Americans do not have one and lack other important end-of-life documents, including a revocable living trust.
This is a legal arrangement that keeps your property while you are alive and transfers it to your heirs after your death without the complicated process known as probate.
According to a June episode of Suze Orman’s podcast, there’s another reason to set up a living trust: a disability clause.
“If you are unable to work or fall ill, then you have appointed someone to be your successor trustee who will pay your bills and distribute money to look after you. … A will comes into effect only after you have died.”
Orman says you should set up a revocable trust to bequeath your home and other important assets, and draft a will for your other special possessions, like your great-grandmother’s wedding ring or your first edition book collection.
Don’t be afraid to seek expert help
While Suze Orman has some great advice on managing your finances, sometimes it pays to find an expert to sit down with you to help you with your specific plans and goals.
Preparing your finances for retirement can be stressful, especially with current inflation rates and a looming recession.
According to Federal Reserve Board data, only 40% of non-retirees are confident about their retirement plans — many Americans could clearly use some help managing their finances ensure their assets are protected.
Working with a financial advisor is often a smart move, and it’s better to start sooner rather than later.
Because finding a suitable and trustworthy professional is overwhelming for many people, they exist free online services designed to match you with a pre-vetted financial advisor to meet your unique needs.
This article is informational only and should not be construed as advice. It is provided without any guarantee.
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