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Five Toxic Myths That Could Ruin Your Retirement

Expert Panel
POST WRITTEN BY
Elle Kaplan
This article is more than 6 years old.

When it comes to retirement, finance can be confusing — even intimidating. After all, the average layperson is charged with the task of creating a nest egg that will last for decades.

So it’s no surprise that plenty of myths have been bred about retirement planning, in order to make this subject simpler and easier to understand. While most these myths come from a good place, they shouldn’t be applied to something as unique as your financial life.

In my decade of helping individuals retire, I’ve seen plenty of individuals put major stock into preparing based on retirement “rules” — which, in reality, turn out to be harmful myths that set them back.

Without further ado, here are some of the most common and harmful retirement myths, and what you should do instead to prep for your golden years.

Myth #1: “My spouse will take care of everything.”

It’s true that teamwork can make the retirement dream work — combining your financial powers in marriage can be very effective. However, that doesn’t mean you should completely rely on your spouse.

Even if you have one person carefully managing your finances, should the worst happen, you don’t want to be in a scenario where you’re left blindsided financially. It happened to my mother when my father passed; he took care of the finances, and she was completely overwhelmed afterward because she had turned a blind eye to planning. Financial success as a couple relies on both partners being aware of every moving piece of the picture.

Women also have other concerns to worry about. On average, we live longer, tend to be extended caretakers for our families, and earn less. Even if your partner is doing most of the investing, you need to make sure these needs will be taken care of.

Myth #2: “I’ll pay lower taxes and need less money in retirement.”

There are plenty of myths surrounding spending rates in retirement, such as the idea that you’ll need 65–90% of your pre-retirement income to maintain your lifestyle. While that might work for some, it will leave you underprepared if you plan to do things like traveling, which can cause your spending to be higher than it was pre-retirement.

Rather than relying on this myth, consider mapping out your goals for retirement, like where you want to live, to get a realistic sense of your income needs.

Although you’re done with paychecks — and the taxes associated with them — you won’t necessarily pay lower taxes in retirement. The aforementioned higher income could place you in the same tax bracket or even a higher one. In addition, the tax bill for some investments (like a 401(k)) only arrives once you start making withdrawals.

As such, it can be incredibly valuable to work with an advisor or tax professional who can ensure your portfolio is tax-efficient, so you can save on taxes instead of being blindsided by them.

Myth #3: I shouldn’t put any money in stocks, because stocks can lose money, and I’m getting really close to retirement.”

Stocks are riskier, and their potential for loss is bigger, so this myth does have some solid grounding. However, that’s only in the short-term, and the truth of the matter is that switching entirely to bonds or other low-risk investments can reduce your gains and cause you to undercut your nest egg, even later in life.

If you take a long panned-out view, stocks are far less risky. Since 1926, it has taken an average of 3.3 years for stocks to reach a new high after a bear market, according to The Wall Street Journal (paywall). Even as you inch towards retirement, some degree of risk-taking can be incredibly beneficial.

Even if you understand the value of long-term investing, you might not realize how much room your stocks have to grow in your middle ages. Our average lifespans are longer than ever. If you're 50 now and you live to 75, that’s two-and-a-half decades in which your portfolio will need to still provide income. Those decades without the growth that stocks provide can leave many retirees underprepared.

Myth #4: “I can work as long as I have to.”

Finding a part-time job after you retire can provide a plethora of benefits, both financially and in terms of life satisfaction.

However, while aspiring to continue your job (either part- or full-time) is a great goal, it’s far from a certainty. When you’re young, healthy and optimistic, it’s easy to assume that an additional decade of work will be a breeze. Actually working in your 60s and 70s, however, is an entirely different matter. You don’t want to be forced to work when you encounter health problems, changing life priorities, or are just plain burnt out.

Working well past retirement age should be an option, but your retirement plan shouldn't depend on it.

Myth #5: "Social Security will vanish" or "I can rely on Social Security."

The myths surrounding Social Security and retirement often veer towards two scenarios: people either think they can heavily rely on it, or they believe Social Security will disappear by the time they need a nest egg.

In reality, both scenarios are likely too extreme. The good news is that the Social Security administration predicts that payoffs will be completely sound until 2037. Moreover, future payoffs could be fixed by legislative changes.

But just because Social Security won’t pull a disappearing act in the near future doesn’t mean it’s your "golden ticket" for retirement. A report by AARP found that while over one-fifth of Americans relied almost completely on Social Security benefits in 2013, these benefits only provided an average of $1,308 in monthly income. Although you should account for this income in your plan, it probably isn't enough to serve as a nest egg.

The Bottom Line

Don't mistake overlooking aspects of your retirement planning with simplification. Although retirement can appear confusing, by planning with your specific needs in mind, you can avoid these myths and ensure success.

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