Today, we continue our conversation on the top financial debates we often hear when people are planning for retirement. From taxes to credit cards, which side of the aisle do you agree with?
#6 Will You Be in a Lower Tax Bracket in Retirement?
Traditionally, we assumed that people would be in a lower tax bracket in retirement. Therefore, the majority of their savings were put into tax-deferred accounts like 401(k)s and IRAs. But this might not be the best assumption to make anymore.
Taxes are going up and many clients aren’t in a lower tax bracket once in retirement. It’s better to look at diversification and see which allocations will aid you the most.
#7 Should You Use Credit Cards?
Most of us probably automatically think credit cards are bad and while racking up debt isn’t good for anyone’s financial plan; they may have some uses. There are always pros and cons.
It can be easier and safer than cash or debit cards or you can collect money back points. The big rule is to pay it off as you go whether that’s every week or month. Definitely don’t let consumer debt eat away at your financial plan.
#8 Mutual Funds or Individual Stocks?
The advantage of individual stocks is that you get to support and buy a part of a specific company. On the downside, you have limited exposure. If it does great, you do great but if the stock does badly you also do bad. Stock value doesn’t always represent the value of the company either.
With a mutual fund or ETF, you can get much broader exposure with a smaller investment. It comes down to what you want to accomplish in your plan. Mutual funds can be balanced or unbalanced, it’s important to be diversified to spread out the risk.
#9 Should You Start Social Security as Soon as Possible?
“Social Security is going broke” is a constant headline we see when it comes to financial media. This prompts people to believe that they need to take Social Security as soon as possible.
Of course, there are problems with the Social Security system, but most pre-retirees don’t need to worry about a structural change in their benefits. Don’t make a harsh decision because of what you hear. Waiting to take that benefit can really aid you in the long term, we have to sit down and do the math. Which option is best for you?
#10 Can You DIY Your Financial Plan?
The argument goes that DIYing your retirement plan saves you money. In the past 12 or 13 years, investing has been fairly easy for most casual investors. But the market isn’t always going to be a smooth ride, we’re seeing a bit of volatility already.
Working with an advisor means there is a professional designated to protect your plan through diversification. They also help you navigate the nuances of retirement planning, investing, and risk. When it comes to retirement planning there are a few things we can do ourselves, but working with a professional means we always have someone on our side.
[2:45] – Defer or don’t defer taxes
[10:24] – You should never use credit cards
[15:53] – Mutual funds or individual stocks
[25:03] – Start Social Security as soon as possible
[28:31] – Can you DIY retirement planning?
A Quotable Moment:
“You have to have perspective. For taxes never look at today because you’re going to get the wrong answer. You’re going to get the answer for today. If you want the long term picture on taxes, you’ve got to look at the bigger perspective.”