When setting personal finance goals, it's crucial to consider the specific factors which can affect your personal finance. There are many life milestones which require proper planning to ensure your financial health remains stable, and that you’re setting yourself up for success.
Everyone’s personal financial situation is different, but below are questions that you will encounter in life and that you should have information about to make the most informed and best decisions for your financial situation.
Is Your Home A Bad Investment?
Deducting closing costs, home upkeep, mortgage payments and remodeling costs significantly reduce a home's annual return on investment by up to 12%. Most new homeowners don't consider these costs when contemplating on buying a house. However, owning your own home provides a secure place for you to live and allows you to avoid paying steadily rising rent costs. Additionally, interest and property taxes can also be tax deductible, which is not true when renting. Owning a home is a personal decision, but paying into your home’s equity instead of paying rent can be the right call if you have the right financial health to afford it.
Should I Choose a Roth 401(k) or a Traditional 401(k)?
Ultimately, the decision is always going to be a personal one based on your needs, and consulting a financial advisor is advised. A Roth IRA allows you to make a tax-free withdrawal five years after opening an account. Conversely, if you are over 59.5 years old and you have a traditional IRA, you'll be taxed for withdrawals. The same tax rate is used to estimate tax deduction on your IRA withdrawals and contributions.
When you contribute to the traditional 401(k), you get a 22% tax for your contributions and make a saving of 22%. However, when you withdraw your contributions in retirement, you need to have a taxable income of more than $38,700 to get a 22% tax rate. You should thoroughly evaluate your options and future financial plan to decide which option will work best for your situation.
Should You Take Your Social Security Benefits at Age 62 or Later?
Some studies show that you could potentially optimize your Social Security by waiting until you are 70 years old to take it if you are the breadwinner. Typically, the benefits grow by 8% each year you wait, which can be higher than your other retirement investments' growth rate. Moreover, delaying increases the benefits a surviving spouse would eventually get. However, it is also a viable option to collect more social security checks by starting early and starting to take your Social Security right at age 62. If you live longer, you’ll end up collecting more and will be able to enjoy the benefits.
All of these questions are serious financial decisions that you should fully evaluate and discuss with a financial advisor. The more educated you are about personal finance decisions, the better and more informed decisions you can make.