Question: What are some of the generally recommended do’s and don’ts of financial planning when approaching retirement?
Answer: According to New York Times bestselling author and online financial columnist, Suze Orman, there is a substantial list of both good and ‘not so good’ financial decisions pre-retirees can make.
Orman has been a contributing editor to both “O” The Oprah Magazine and Costco Connection Magazine for more than 16 and 18 years, respectively, as well as host of the award-winning Suze Orman Show, which aired on CNBC for 13 years.
The first don’t Orman recommends is do not retire too early even though there is a small but burgeoning ‘early retirement’ movement. During a podcast, Orman was asked about FIRE – that’s “financial independence, retire early.” Her blunt response was, “I hate it!”
FIRE movement proponents focus on obtaining financial independence by amassing enough wealth and cutting ongoing living expenses so they can retire at a very young age some in their 30s or 40s.
To retire at that age, “You need at least $5 million or $6 million (in liquid assets),” Orman said. “Really, you might need $10 million. Anything less wouldn’t offer enough protection from a potential financial catastrophe, like an expensive illness,” she said.
“You will get burned if you play with FIRE,” Orman added.
Further, Orman does recommend waiting until age 70 to retire. “Every year you wait between your normal retirement age and 70, Social Security will add a guaranteed eight percent to your eventual monthly payout,” she writes in an AARP Magazine article.
“Living well into your 80s and beyond is no longer some rare event,” Orman said, so you will want to make sure your financial resources will last if you do.
Next, do not let a mortgage wreck your retirement. A survey released by American Financing, a mortgage banking firm, found that 44 percent of Americans in their 60s and 70s still are paying off a mortgage. “This is so not OK,” Orman said.
She urges seniors to pay off their mortgages, if possible, and pay off other debts to stretch savings and provide more financial security in retirement. “If you’re going to stay in that house for the rest of your life, pay off that mortgage as soon as you possibly can,” Orman told CNBC.
Whether or not your mortgage is paid, Orman warns against the temptation to get a reverse mortgage, a type of home equity loan for seniors that allows homeowners to receive either a lump sum or monthly installments.
“If you tap your entire home equity through a reverse mortgage at 62 and then at 72 you realize you can’t really afford the home, you will have to sell the home,” she said. Orman suggests getting a professional certified financial planner to help determine the best way to stretch your retirement savings.
Finally, Orman recommends you do have a will. However, most Americans do not have one and lack other important end-of-life documents, including a revocable living trust.
“Do you have your estate planning in place? If not, you might want to think again,” Orman wrote on Oprah.com.
For more information from Suze Orman, you can log on to suzeorman.com/.