Your financial planner: Myths that don’t apply to retirees

Sometimes the rules don't apply. Here's a rundown of four typical rules for retirees which deserve a second look.

▪ Should you pay off your mortgage before you retire?

It depends. If your interest rate on a fixed mortgage is high, say 6% or more, probably. If it's low, say 3%, maybe not. Are you able to deduct the interest expense? That favors keeping the mortgage. If not, that might favor paying it off. Is your mortgage nearing the end of life, where the interest expense amount is very low? If so, that deduction is worth little. Are your itemized deductions clipped back due to the Pease limitation, so you're not getting much from the interest expense deduction anyway? If the cash to payoff the mortgage will come from an IRA, where every dollar withdrawn is taxed, that may increase your taxes and marginal tax rate - a bad thing. Do you have a variable rate mortgage? That favors paying it off now, before rates rise. Some seniors worry about carrying a mortgage into retirement. If that's you, consider paying it off.

▪ Should the percentage of your portfolio in bonds should be equal to your age?

If you're 30 years old, you should invest 30% of your portfolio in bonds, and 70% in stocks. If you're 80, then 80% should be in bonds, 20% in stocks. Life expectancies are extending, and an 80-year-old can expect to live to age 91. Since life expectancies are an average, 50% will live over that, perhaps to 100. Investing only 20% in growth for 20 years, from age 80 to age 100, is inadequate for most portfolios. A balanced diversified approach, assessing how much risk you can and are willing to take, may be better.

▪ Should you keep larger and larger cash balances as you age?

This is an observable phenomena, and may be a result of inertia. Keeping large balances in money market and bank accounts at these interest rates is akin to stuffing dollars under the mattress. Unless your retirement portfolio is projected to easily fund all of your future living needs, don't lose earnings you may need later on.

▪ Should you downsize your home?

Not necessarily if you're still able to handle and enjoy home ownership. Renting may cost you more than your current mortgage, if you have one. You may have a very nice home with a mortgage payment you can afford. Renting an apartment comparably nice may cost far more than you imagine so check first.

You'll want to document all the costs associated with owning your home, and compare that to all the costs associated with renting. If you're considering this early in retirement, keep in mind that rents rise while payments on a fixed rate mortgage do not.

Take a second look at the myths seniors are often told. Question those, and research what's best for your financial situation.

Sandi Weaver, CPA, CFP at Financial Security Advisors in Prairie Village, KS, and member of the Financial Planning Association of Greater Kansas City.

The information provided in this article is provided for general information and educational purposes only, and is not intended to be and should not be relied upon as legal, accounting, tax, investment, or other professional advice or services. Because every individual’s situation is unique, you should consult a professional who can thoroughly review and analyze all aspects of your particular situation before making any decision or taking action.

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This story was originally published June 10, 2015 at 11:13 AM with the headline "Your financial planner: Myths that don’t apply to retirees."