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Early Retirement Dream or Financial Nightmare? Suze Orman Delivers a Reality Check
NATIONAL NEWS – Financial guru Suze Orman recently dished out some tough love on her show, offering a crucial reality check to a caller hoping her husband could retire early. While the couple seemed to have a solid financial foundation, Orman’s deep dive into their numbers revealed some universal truths about what it truly takes to achieve a comfortable retirement.
The caller, Kathy, explained that she and her husband, aged 53 and 58 respectively, envisioned her husband retiring at 62 and deferring Social Security until 66. Despite substantial retirement savings, Kathy grew concerned about their everyday expenses, prompting her call for Orman’s expert guidance.
The Numbers Don’t Lie: A Closer Look at Their Finances
Orman’s analysis painted a detailed picture: The couple boasted a net worth exceeding $900,000, including approximately $675,000 in retirement accounts and a $44,000 emergency fund. They also owned two homes valued at $320,000, offset by $70,000 in mortgage debt and a mere $500 in consumer debt.
However, the seemingly impressive figures masked a critical flaw: The couple was spending $295 more per month than they earned. This meant even while working, they were living beyond their means. Projecting their income into retirement, Orman calculated they would face a staggering $2,000 monthly deficit, with only $3,600 to cover $5,534 in expenses.
This stark reality led Orman to offer five critical pieces of advice, applicable to anyone eyeing retirement:
1. Prioritize Paying Off Your Home in Full
Orman emphasized that despite their near-million-dollar net worth, their mortgage debt created a significant monthly burden. With over $5,000 in monthly expenses, eliminating the mortgage was crucial to avoid a substantial deficit in retirement. “You need to have it be your number one priority that your home is paid off in full by the time you retire,” she stated.
2. Establish a Will and Trust
Beyond the immediate financial concerns, Orman stressed the importance of essential administrative tasks. She urged Kathy to establish a will and trust immediately, considering these non-negotiable prerequisites before even contemplating early retirement.
3. Invest in Long-Term Care Insurance
Recognizing the escalating costs of long-term care, Orman advised both spouses to explore long-term care insurance. These policies provide crucial financial support for services like assistance with daily activities, and securing coverage before health issues arise can significantly impact rates and eligibility.
4. Increase Life Insurance Coverage
Orman highlighted the importance of adequate life insurance for couples nearing retirement. She informed Kathy that they were underinsured and that increasing their coverage should be a priority for the next five years to ensure financial security.
5. Work as Long as Possible
Ultimately, Orman challenged the couple’s early retirement aspirations, urging them to work as long as possible to fortify their financial position. “You should be working as long as you possibly can…I’m not even sure I see [retirement] at the age of 66,” she cautioned.
She left Kathy with thought-provoking questions: Can they truly afford two homes? Should they downsize?
What are the real benefits and risks of early retirement?
The Bottom Line: Beyond the Balance Sheet
Orman’s counsel underscores a fundamental truth: True retirement readiness extends far beyond the amount in your savings account. A comprehensive assessment includes scrutinizing monthly expenses, understanding insurance needs, and critically evaluating the wisdom of retaining assets like multiple homes. These crucial considerations must all play a vital role in making informed retirement decisions.
Smart Money Moves for Everyone
Regardless of your current financial standing, there are always opportunities to enhance your financial well-being. Here’s a quick checklist to consider today:
- Tackle Debt: Debt can be a significant roadblock to financial progress. Explore strategies like balance transfer credit cards or debt counseling to accelerate your repayment.
- Boost Your Income: If finances are tight, earning additional income can provide much-needed breathing room. A new job or a part-time side hustle can make a substantial difference.
- Trim Expenses: While it may seem daunting, cutting expenses doesn’t have to be painful. Focus on your largest expenditures, such as soaring auto insurance rates, by shopping around for better deals.
For upcoming travel, a suitable travel credit card can help offset costs.