Today's Hack

Should you pay the house off before retirement? Do you need to keep your life insurance once retired? Do annuities deserve their bad reputation? On today’s episode, we’ll breakdown some famous financial debates and how each side approaches these topics. Who do you agree with?

There are various financial debates floating around out there. On today’s show, we’re going to break down the top ten financial debates and discuss each side’s approach to the issue. From bonds to life insurance, which side do you agree with?

#1 The House: To pay it off or to not pay it off?

There are two sides to this coin. When interest rates were historically low it didn’t make sense to pay off the house. But now that the market is changing, it may be something to consider. While it’s nice to not have that bill in retirement, if you have to strain your savings in order to pay it off it might not be worth it. We have to do the math.

It used to be a tax advantage to have a mortgage as well. Today, with a higher standard deduction many people are wondering why keep their mortgages? If the thought of continuing to pay your mortgage into retirement stresses you out it may be better to pay it off ahead of time.

#2 Individual bonds or bond funds?

A bond fund is actually made up of individual bonds. The advantage to bond funds is broader exposure with less investment. The downside is the constant inflow and outflow of money. That manager has to buy and sell bonds, as interest rates rise values naturally fall.

That’s when an individual bond may be more advantageous. As long as you hold it to maturity it doesn’t matter what rates do. You’ll get your principal back and get whatever rate they’re paying.

#3 No one needs life insurance once they retire

This is a common assumption. The mortgage is probably paid off, the kids are likely out of the house, and you’re living off of your savings. So, why would you need life insurance still? When we are planning, we run this scenario: planning for the best but preparing for the worst.

We want to make sure your spouse is taken care of if you were to pass away and vice versa. How are they going to replace 1/2 of your income? If your plan is strong enough to support them without life insurance that’s great, but if not, insurance is something to consider.

#4 Are annuities a rip-off?

Annuities have received a bad reputation, but is it justified?  Annuities are basically a self-funded pension. They can be bad, but they can also be great. You just have to plan correctly!

If they’re the only thing you are being presented with, you’ll want to consider other options. But they can be a valuable investment tool for many retirees. With anything, you have to understand the different types of annuities and how they work into your income plan.

#5 A fee-based advisor or commissioned-based broker?

Once again it comes down to what you’re trying to do. If you know you want to buy a specific stock a commissioned broker may be better. Brokers are looking at suitability. An advisor focuses more on a long-term plan that can sustain you to and through retirement.

[1:05] To pay off the house or to not pay off

[7:50] Individual bonds vs. bond funds

[11:18] Nobody needs life insurance after retirement

[17:47] Annuities are a rip-off

[25:08] Fee-based advisor vs. commissioned broker

A Quotable Moment:

“With annuities the thing you are going to always give up is liquidity… It’s a longer-term investment.”

-Phil Putney

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