In my previous post I talked about some bad pieces of retirement advice I hear often. In this post I’m going to list a few more. Hopefully these misconceptions will convince people to start saving and investing as soon as possible. Take advantage of your tax deferred accounts. When you’re ready to look into some more active forms of investing, we can help.
1. “I need to pay off my mortgage as fast as possible.”
There’s a saying that goes something like, “Wealth means no debt.” In a sense, that’s true. Wealth means have a positive net worth, but that saying is also a bit shortsighted.
Debt is necessary and reasonable in many instances. Most of us don’t have $500,000=1,000,000 in cash to drop on a house. We need a mortgage. For some, this debt is a weight on their back they can’t wait to shake. But it’s not always financially smart to pour money into your mortgage to make it go away.
Mortgages usually have lower interest rates than any other debt. It’s smarter to pay other debts (like car loans, student loans or credit cards) down first. Even after you have cleared all other debt, it’s smarter to invest your extra cash rather than throwing it at the mortgage’s principal. For example, if you have an investment that reasonably returns 8%, and your mortgage’s interest rate is 3%, you can still earn 5% on that extra cash.
2. “I’ll downsize and live simply during my retirement.”
A lot of people think trimming their lives down to the essentials is simple. Maybe you can sell your five-bedroom home for a two-bedroom condo and sell of that third car, but reducing your lifestyle is harder than some think.
With nothing to do, it’s tough to resist day trips, dinners with friends and splurges on your grandkids. The condo association fees add up. Your health care costs inevitably rise. Sitting around at home doing nothing is tough. It’s work that prevents us from spending a lot of money. Even if you manage to cut your expenses to the bare bones, what sort of life is that?
3. “I’ll rely on Social Security and/or my company pension.”
We all know the days of paternalistic employers are over. No one is giving pensions out anymore. If you don’t have one, you probably won’t find one. Those pensions that are still around are often underfunded. If you own your own business, firm or practice, you’re on your own anyway.
Social Security is tenuous at best. There’s a lot of back-and-forth about the stability of Social Security, but as far as I’m concerned, that uncertainty means we should plan to go without it. Even if you do collect social security, it only provides a meager lifestyle. It may be possible to live off it, but it’s not comfortable.
Written by Mark A. Mascia, President and CEO of Mascia Development
Mark manages the investment and operating activities of Mascia Development, a diversified value real estate investment firm that acquires, owns and manages retail, medical office, family offices, multi-family, and industrial real estate properties in the most promising long term growth areas nationwide. Through crowdfunding, they create powerful real estate opportunities for high net worth individuals.
A fully integrated real estate company, Mascia Development has in-house capabilities in acquisitions, financing, re-development, and construction; and their principals have experience in property and portfolio management, leasing, and maintenance.
Mark has a strong career in real estate, previously managing a property of portfolios valued over $1.1 billion. Mark has worked at Archstone-Smith (a former publicly traded REIT) and Monument Realty, one of the largest office real estate developers in the Washington, DC metro area. Mark teaches real estate development and finance at New York University.
For more information, visit www.masicadev.com.
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