Don’t Let Personal Finance Myths Dent Your Fiscal Future
The best thing to do when confronted by an urban myth is to do a little digging before you either act on it or pass it along to someone else. One of the best sources we know for debunking internet rumors and misinformation is www.snopes.com. But when it comes to personal finance, check out the article “8 Urban Myths of Personal Finance” from Kiplinger, which sets the record straight.
Myth: There’s No Need to Start Saving for Retirement Until You’re 40. Did you know that 25% of Americans ages 30 to 49 have saved nothing for retirement and that 59% say they plan to save more aggressively “later” to make up for that shortfall? The long-term effects can be disastrous if you don’t put away money in a retirement savings plan as soon as you start earning a paycheck. The truth is the sooner you start saving and investing, the better.
Myth: Social Security Won’t Be Around When I Retire. Many people in the U.S. (55%) have this fear. The truth is Social Security isn’t going away. But remember that Social Security was designed as a supplemental retirement insurance program, not a pension per se.
Myth: I Can Borrow from My 401(k) When Needed. More than 20% of 401(k) plan participants who are eligible to take loans against their retirement savings had outstanding balances in 2012. But there’s a problem in doing this—you’re borrowing pre-tax dollars set aside in your 401(k) and paying the loan back with after-tax money. That money will be taxed once again when you withdraw from your savings after you retire! If you quit your job, are laid off or are fired, you’ll need to pay the loan back—usually within 60 days. If you can't pay it back, the outstanding balance is deemed a taxable distribution, and you’ll get dinged with a 10% early-withdrawal penalty if you are under 55. The truth is that while you are permitted to borrow from your 401(k) to make a down payment on a home or in cases of financial hardship, you’ll take a huge hit on your nest egg.
Myth: You Only Need a Will If You’re Rich. Without a will, the state decides what happens to any property you own, and without a will, your minor children’s fate and future will be determined by a judge who doesn’t know a thing about you or your family. If you want to have a say about your funeral, protect your children or determine what happens to any property that you own, you need a will. The best person to help you put a plan into action, regardless of how much or how little you own, is an experienced estate planning attorney.
Reference: Kiplinger (May 2016) “8 Urban Myths of Personal Finance”