Retirement Tips (Good Financial Cents.com)

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This is Jeff Rose, goodfinancialcents.com. I just want to take a quick minute to address an occurrence that has actually happened more often over the past few weeks. I have some clients that are approaching retirement. They are getting ready to flip that switch where they no longer have that paycheck they have been so accustomed to their entire life, to now they’re paycheck is going to become their retirement account. Their IRAs will now be depositing directly into their bank accounts and that’s going to be their paycheck, so that is what they have to live off of. The mistake that I am seeing a lot of them want to do is they want to pay off all their debt. They think they still need the exact same amount they were getting as they were working, so they want to keep drawing the same amount of paycheck. The one thing I have to go over with them again is this: 1) Okay, I agree, paying off debt is a very good thing. I want people to do it, but not from the stand point of having to pay extra tax by doing so. What I mean is these clients are wanting to take distributions from their IRAs or pensions and pay the appropriate 20, in some cases we’re talking 25%, taxes to pay off the debt. If the debt is a car note, which often time it is to where their note interest rate is anywhere from 4-6%, I just don’t see the point of paying 25% income tax to pay off a note that is only having to yield you 6% interest. One thing I would just have you consider is when you do retire and you want

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