‘This is so not OK’: Suze Orman says avoid these 5 financial blunders if you want to live your best life in retirement
In times of hardship, personal finance expert Suze Orman will be the first to tell you that what you don’t do with your money may be even more important than what you do with it.
The host of the Women & Money Podcast says that tapping your retirement money to help with short-term financial problems is something many will regret when they eventually leave the workforce.
“If you can’t pay your bills while you have a paycheck coming in, how are you going to pay for those exact same bills later on in life when you no longer have a paycheck coming in?” she told MoneyWise in a recent interview.
Here are five of her fundamental tips for avoiding mistakes that will affect your future financial security — so you can live comfortably in your golden years even during the current economic downturn.
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1. Don’t touch your 401(k) or miss out on employer matching
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 enough in so that you’ll receive the full matching contribution from your employer.
Orman says your company might 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 another $1,500,” she says on Oprah.com. “Hello! That’s a guaranteed 50% return on your investment.”
With inflation still high and many Americans’ budgets falling short, you might be tempted to borrow money from your 401(k). But Orman says this is one account you shouldn’t touch.
“That is for when you retire. We’re living longer right now. So that retirement account has to be bigger.”
Taking from your 401(k) can leave you vulnerable if you ever need to declare bankruptcy, says Orman, because 401(k) accounts are protected against bankruptcy and can’t be touched if you ever need to declare it.
“So if you are really in a horrific situation, and you have all this debt, you’re underwater with everything, and you need to claim bankruptcy to get rid of that, you still have your retirement accounts.” Orman said in an interview with MoneyWise.
WATCH NOW: Suze Orman warns cash-strapped Americans not to tap their 401(k)
2. Don’t retire owing money on your home
A survey from mortgage banker American Financing found that 44% of Americans in their 60s and 70s are still paying off a mortgage. And 17% said they don’t expect to ever pay it off.
“This is so not OK,” Orman has blogged.
She urges people to go into retirement mortgage-free, for two reasons: to stretch their retirement savings and to rid themselves of debt — an albatross that affects even mental health.
“If you’re going to stay living in that house for the rest of your life, pay off that mortgage as soon as you possibly can,” Orman told CNBC.
Without a mortgage, you’ll have more financial security in retirement, she says. So work until you’re 70, use excess emergency savings and do whatever else it takes to get that house debt paid off.
WATCH NOW: Full Q&A with Suze Orman and Devin Miller of SecureSave
3. Don’t retire too early
During an episode of the podcast Afford Anything, Orman was asked what she thought of the FIRE movement. That’s FIRE as in “financial independence, retire early.”
Her blunt response — “I hate it. I hate it. I hate it. I hate it.” — set off a firestorm among the FIRE faithful at the time.
But she explained that it would take a lot of money to make retirement work at, say, age 35.
“You need at least $5 million, or $6 million,” she said. “Really, you might need $10 million.” In her opinion, anything less wouldn’t offer you enough protection from a potential financial catastrophe, like an expensive illness.
“You will get burned if you play with FIRE,” Orman told her interviewer.
Orman reminded her readers in a June 2022 blog post that there are “no loans for retirement,” so it is key that you [save enough for the retirement life you want.
In a June blog post, she 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 can’t compound. A $10,000 investment made at age 45 will be worth around $32,000 at age 65, assuming a 6% annualized return,” she writes.
“Invest the same $10,000 at age 55 and it will be worth less than $18,000.
4. Don’t take out a reverse mortgage in your 60s
A reverse mortgage is a type of home equity loan for seniors that allows you to receive the money as a lump sum or in monthly installments.
The loan is repaid, with interest, when you die or sell the house.
You can take out a reverse mortgage starting at age 62, but Orman says that’s risky.
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In her view, it’s best to treat a reverse mortgage as a last resort for emergency money, and to wait as long as you possibly can before going that route.
“If you tap all your home equity through a reverse at 62 and then at 72 you realize you can’t really afford the home, you will have to sell the home,” she says.
In a recent interview with MoneyWise, Orman emphasized the importance of emergency savings and what can happen if you’re caught unprepared for your next financial emergency.
WATCH NOW: Suze Orman tells a cautionary tale on what happens when you can’t cover your next financial emergency
5. Don’t go without a will
“Do you have your estate planning in place? If not, you might want to think again,” Orman writes on Oprah.com.
While everybody needs a will, most Americans don’t have one and lack other important end-of-life documents, including a revocable living trust.
That’s a legal arrangement that holds your property while you’re alive and transfers it to your heirs after your death, without the complicated process known as probate.
According to a June episode of Suze Orman’s podcast, there is another reason to set up a living trust: an incapacity clause.
“In case you are incapacitated, you get sick, then you’ve named somebody as successor trustee to pay your bills, to disperse money to take care of you. … A will only goes into effect if you have died.”
Orman says to set up a revocable living trust for passing down your house and other major assets, and draw up a will for your other special possessions, like great grandma’s wedding ring or your first-edition book collection.
WATCH NOW: Full Q&A with Suze Orman and Devin Miller of SecureSave
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.