Myth #1: You Must Pay Off Your Mortgage Before Retiring
This is a common belief, but it’s not always the case. In fact, it really depends on your individual circumstances. For example, if you have a low mortgage rate and other investments that are earning a higher return, it might make more sense to continue investing and pay off your mortgage slowly over time. On the other hand, if you have a high mortgage rate and no other investment opportunities, paying off your mortgage as quickly as possible could be a smart move (plus the peace of mind it brings has to be accounted for).
Myth #2: You Need Dividends To Make Up All The Income You’ll Need In Retirement
While dividends can be a useful source of income in retirement, they’re not the only option. In fact, there are many different ways to generate income in retirement, including investments, social security, rental income, inheritance, and pensions.
The key is to focus on replacing your income, rather than trying to hit a specific savings target. This means figuring out how much you’ll need to live on each month and then finding ways to generate that income. For some people, dividends may be an important part of their retirement income strategy, but for others, they might not be as important.
Myth #3: As You Get Older, You Need To Have A “Less Risky” Portfolio.
The reality is that the real risk in retirement isn’t the ups and downs of the market – it’s the risk of running out of money. In order to protect against this risk, it’s important to have a mix of investments with different levels of risk and return potential.
One thing to consider is that as you get older, you’ll need more conservative assets to pull from in order to generate income. This doesn’t mean you need to completely abandon growth investments, but it does mean that you need to be strategic about how you balance your portfolio.
One way to do this is by following what’s known as the guardrails approach (developed by Jon Guyton), which allows you to take a certain percentage of your portfolio (5.2% – 5.5) as income each year without running the risk of running out of money. This approach takes into account a variety of factors, including your age, investment time horizon, and the makeup of your portfolio.
Ultimately, the key to successful retirement planning is to focus on creating a balanced and sustainable income stream that meets your needs and goals. By keeping these myths in mind and being mindful of your investment strategy, you can set yourself up for a comfortable and secure retirement.
Ari Taublieb, MBA is the Vice President and a Financial Planner at Root Financial Partners. Ari is also the host of the Early Retirement podcast. He specializes in helping people invest, save on taxes, and create an overall financial strategy to retire early.
Create your custom strategy today with Ari here.
Company Name: Early Retirement Podcast
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Country: United States