Courtnyk/Getty Images
Commitment to our readers
The GOBankingRates editorial team is committed to providing you with unbiased reviews and information. We use data-driven methods to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our review methodology for products and services.
20 years
Helping you become richer
trusted by
millions of readers
Retirees are often told they need more things, more insurance, more upgrades, more “just in case” purchases.
but according to Kevin LumAccording to the Certified Financial Planner (CFP), many of these recommendations can deplete savings without adding real protection or value. Knowing what to leave can be just as powerful as knowing what to buy.
Insurance
Lum explains that when purchasing insurance, a good question to consider is, “What is the insurable interest?” He further said that life insurance exists to replace dependents’ income, and for about 90% of retirees, they often buy it simply for peace of mind, not because they really need it.
Life insurance is designed to replace the income of people who are financially dependent on you. In retirement, whether it’s still in your plan depends on who, if anyone, is relying on that income.
variable annuities
Lum said most people don’t realize that they will often have to pay fees of up to 3% or 4% per year for annuities.
Variable annuities are often presented as safe and guaranteed, but there’s a problem: They come with fees that can slowly eat away at your money. employee fiduciary. These special fees, often called “wrap fees”, are rarely obvious. They’re hidden inside expense ratios and insurance contracts, making it easy for even experienced investors to miss them and over time, what seems like a minor fee can easily drain tens or even hundreds of thousands of dollars from your savings.
Overpriced active mutual funds or ETFs
Lum advises that if his audience is paying high expense ratios on exchange-traded funds (ETFs) or mutual funds, they should reevaluate by asking, “What objective does that fund serve?” He also said that, in general, it is best to keep the expense ratio on funds used as low as possible.
morning Star Suggest that retirees keep in mind that when looking at ETFs, index funds or others, low costs and tax efficiency are best, but ease of cash flow extraction and monitoring is also important. Once retirees need their portfolios to provide cash flow for living expenses, they should keep investment-related costs low so that the bulk of the returns come back to them.
extended warranty
Lum said Consumer Reports has shown that most people who purchase extended warranties spend more each year on the warranty than they receive in claims. It would be a better idea to skip the warranty and increase your emergency fund.
According to the Ministry of Financial Services, the extended warranty can extend the coverage to three or five years mmbb. The problem is that many devices never fail during that window. And when something goes wrong, the repair cost is often less than the warranty. Add in the fact that some credit cards already offer protection, and extended warranties start to seem unnecessary. Before agreeing to the cost of an extended warranty at the register, pause to see what type of coverage is already in place.
For a vehicle’s extended warranty, be sure to check the fine print to check deductibles, declined claims, and which repairs are not covered. If the car is known to have high repair costs, or if the car will be kept for a long time, an extended warranty may be required.
Overall, Lum told her audience that the most successful retirees know that buying more things is not the solution. Instead, a plan has to be made for this. He emphasized on the fact that if something does not have a clear explanation of how it makes money, it is best not to invest in it.