In times of difficulty, personal finance expert Suge Orman will be the first to tell you that what you don’t do with your money can be even more important than what you do with it.
The host of the Women & Money podcast says tapping their retirement money to help with short-term financial problems is something they’ll do when they eventually leave the workforce.
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“If you can’t pay your bills while you have a paycheck coming in, how are you going to pay those same bills later in life when you don’t have a paycheck coming in?” he told Moneywise in a Interview,
“This is for when you retire. We’re living a long time now. So that retirement account has to be big.
Here are his five foundational tips for avoiding mistakes that will affect your future financial security — so you can protect your retirement nest egg through tough economic times and live comfortably in your golden years.
1. Don’t Touch Your 401(k) or Miss the Employer Match
If you have a 401(k) or other retirement plan through work, don’t leave free money on the table.
Make sure you’re putting in enough so that you can get the full matching contribution from your employer.
Orman says your company can kick in 50 cents for every dollar you contribute, up to 6% of your salary.
“Under those terms, if the employee contributed $3,000, the employer would kick in $1,500,” she says on Oprah.com. “Hello! This is a guaranteed 50% return on your investment.”
With inflation still high and budgets tight for many Americans, you may be tempted to borrow money from your 401(k). But Orman says this is one account you shouldn’t touch.
In a February blog post, she wrote: “I want to be clear: I still think you should make every effort to never touch your retirement savings.”
Taking from your 401(k) could leave you vulnerable if you ever need to declare bankruptcy, says Orman, because 401(k) accounts are protected against bankruptcy and if you ever have to declare it It cannot be touched when it is needed.
“So if you’re in a really terrible situation, and you have all this debt, you’re underwater with everything, and you need to claim bankruptcy to get rid of it, you still have Your retirement accounts.” Orman said in an interview with Moneywise.
watch now: Suge Orman warns cash-strapped Americans not to tap their 401(k)
2. Don’t retire with money owed on your home
A survey by Mortgage Banker American Financing found that 44% of Americans in their 60s and 70s are still paying off mortgages. And 17% said they don’t expect to ever pay it.
“It’s not okay,” Orman blogged.
She urges people to go retirement mortgage-free for two reasons: to grow their retirement savings and to free themselves from debt—an albatross that also affects mental health.
“If you’re going to live in that 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, tap into extra emergency savings, and do whatever is necessary to get that house paid off.
3. Don’t retire too early
During an episode of the podcast Afford Anything, Orman was asked what she thought of the FIRE movement. It fires as “Financial Freedom, Retire Early”.
Her blunt response – “I hate it. I hate it. I hate it. I hate it.” At that time the fire raised a storm of fire among the faithful.
But she explained that it would take a lot of money to make retirement work at age 35.
“You need at least $5 million or $6 million,” she said. “Actually, you may need $10 million.” In their opinion, anything less will not provide you with adequate protection against a potential financial catastrophe like a costly illness.
“If you play with fire you’ll get burned,” Orman told his interviewer.
More recently, Orman reminded his readers in a June 2022 Blog Post that “there is no debt for retirement”, so it is important that you save enough for retirement life you want.
She also warned that “you can’t make up for lost compounding”.
“Every dollar you don’t save in your 30s, 40s and 50s is a dollar that doesn’t compound. $10,000 invested at age 45 will be worth about $32,000 at age 65 , assuming 6% annual returns,” she writes. ,
“Invest that same $10,000 at age 55 and it would be worth less than $18,000.
4. Don’t Get a Reverse Mortgage in Your 60s
Reverse mortgage limits have reached an all-time high, with a 12% increase through 2022, according to multiple reports.
A reverse mortgage is a type of home equity loan for seniors that allows you to get money in a lump sum or in monthly installments.
When you die or sell the home, the loan is repaid, with interest.
You can take out a reverse mortgage as young as age 62, but Orman says it’s risky.
“I’ve never been a fan of reverse mortgages and I never will be,” she said of herself. podcast in september,
“I would never in a million years recommend doing one.”
Read more: Boomer’s Regrets: Here They Are Top 5 ‘big money’ purchases you’ll (probably) regret in retirement and how to prepare them
In his view, it’s best to treat a reverse mortgage as a last resort for emergency funding and wait as long as possible before going that route.
In an interview with MoneyWise, Orman emphasized the importance of emergency savings and what can happen if you’re not prepared for your next financial emergency.
5. Don’t leave without a will
“Do you have your estate plan? If not, you might want to think again,” Orman wrote on Oprah.com.
Whereas all one needs willpowerMost Americans don’t have one and lack other important end-of-life documents, including a revocable living trust.
It is a legal arrangement that holds your property while you are alive and transfers it to your heirs after your death without the complicated process called probate.
According to a June episode of Suge Orman’s podcast, there’s one more reason to set up a living trust: an incapacity clause.
“If you are disabled, you become ill, you have designated someone as a successor trustee to pay your bills, to distribute money for your care. … A will is effective only when your Death happens.
Orman says to set up a revocable living trust to pass your home and other major assets, and prepare a will for your other special possessions, such as great-grandmother’s wedding ring or your first-edition book collection.
Don’t be afraid to seek expert help
While Suge Orman has some great advice on how to handle your finances, sometimes it pays to find an expert who can sit down with you to help you with your particular plans and goals.
Preparing your finances for retirement can be taxing, especially given the current inflation rate and looming recession.
According to data from the Federal Reserve Board, only 40% of non-retirees feel confident about their retirement savings – clearly many Americans could use help navigating their finances and making sure their assets are safe,
Working with a financial advisor is often a smart move, and it’s better to start sooner rather than later.
Since many people find it overwhelming to find a suitable and trustworthy professional, there are free online services Designed to match you with a pre-screened financial advisor who will meet your unique needs.
This article provides information only and should not be taken as advice. It is provided without warranty of any kind.