Many Americans share common money misconceptions and have a sense of overconfidence and unfounded optimism about financial planning after the age of 50.
Many Americans share common money misconceptions and have a sense of overconfidence and unfounded optimism about financial planning after the age of 50, according to a new survey.
Charles Schwab & Co., Inc.’s “Money Myths” survey of nearly 1,000 adults between the ages of 30 and 79 found that respondents may be overly optimistic about the future financial options.
"People want to make good decisions about money and many believe they're on the right track with their finances, but often they just don't know what they don't know. These blind spots can lead to missteps that can undermine the best-laid plans," Carrie Schwab-Pomerantz, CFP, senior vice president, Charles Schwab & Co., Inc, said in a statement.
A third of respondents said a 401(k) plan is a good place to turn to for a loan or withdrawal if you need money while working. In reality, taking money from a 401(k) before retirement should be considered a last resort.
A quarter think that by the time they turn 50, it’s too late to make a difference in their financial futures. But, they could still have 15, 20, or more years of saving ahead of them. Plus, when you turn 50 years old, you become eligible for catch-up contributions.
True, saving for retirement is more daunting now than ever before, but many people make it more difficult because they don’t seek input from others when making financial decisions. Nearly half (43%) of respondents think it’s better for one adult in the household to have primary responsibility for financial planning and decision making for the entire family.
"It's so important for both adults in a household to be involved in the important money management decisions," said Schwab-Pomerantz. "In far too many marriages, one spouse shoulders the primary responsibility and the other spouse has minimal involvement. In the event of death or divorce, the ramifications of this can be devastating."
Here are the top money misconceptions Americans are operating under.
5. Misconception: You should start taking Social Security as soon as you’re eligible.
Reality: If you can wait, then it’s better to hold off. If you file too early, then you’ll just be leaving money on the table. The earlier you file, the smaller monthly payment you receive for life. The later you file, the larger the payment you receive.
There’s actually a Social Security “sweet spot.” Monthly benefits are highest at age 70 and don’t increase anymore after. So if you claim after 70, overall lifetime benefits decline.
4. Misconception: Every adult should have life insurance.
Reality: Small business owners and people supporting dependents (like minor children) are those who are most likely to need life insurance. But it’s not for everyone, according to Charles Schwab, and could be a waste of money depending on your individual
3. Misconception: After you retire, you can always get another job if you need more money.
Reality: Considering the high cost of retirement (inflation, healthcare expenses, etc.), many people are realizing that working past retirement age or getting a part-time job might be necessary. However, with competition in the job market getting another job, especially after you have taken some time off for retirement, may not be as easy as you think. Also, personal health issues as you age can make getting another job more challenging.
According to Charles Schwab, while 39% of respondents still in the workforce expect to receive income from a part-time job in retirement, the reality is that just 4% of current retirees actually do so.
2. Misconception: It’s important to eliminate all debt by the time you retire
Reality: There is such a thing a “good debt” just as there is “bad debt.” Good debt, like a mortgage, has lower interest and the debt is deductible. In contrast, credit card debt has high interest and the debt is not deductible.
So depending on what type of debt you have, as well as you individual circumstances and tax situation, it might not be necessary to eliminate all debt before retirement.
1. Misconception: A will is the best way to ensure that your property will be distributed the way you want.
Reality: A will is essential, but it may not be sufficient, according to Charles Schwab. In the event that there is a discrepancy between the beneficiaries named on your financial accounts and those named in your will, then the financial account designations prevail.
Mary Ellen Hancock, CFP, with the management firm Brinton Eaton explains how you might inadvertently disinherit a loved one or create a negative tax situation.