Many of us give thought to what our retirement will be, and how we’ll get there. As a part of these thoughts, there are naturally some assumptions in play.
Sometimes, we have to question these assumptions. Ultimately, shaky assumptions can result in myths about retirement.
An interesting article in SmartMoney discussed what they identified as the 5 Biggest Retirement Myths. I’ll give you their 5, along with my comments:
- $1 million will be enough. I have to agree with this one being a myth. I do so regrettably, because I don’t have that much saved. It’s a number that seems to be a symbolic figure for many people as having “made it” financially, and it’s still a fantastic amount of money. Don’t we all want to get there? Thing is, what will one million dollars mean in the future? If retirement is 25 years away for you, that $1 million will likely be worth far less in future purchasing power than it is today. It may have been a benchmark for what makes a person successful in saving in prior years, but not necessarily these days.
- You’ll Spend Less When Older. Again, I agree that this is a myth. Now, it might not be if you pay off a big mortgage, get rid of debt, or get done with expenses for your kids. However, your own health care costs may rise significantly. These expenses can often be much higher than people expect. Plus, other expenses just don’t go away, and newer ones seem to emerge. Thinking that you’ll spend 50% as much during retirement, or that you’ll enjoy learning to live more frugally, is probably not as easy as it might seem.
- Older People Need More Bonds. This is an interesting one. I can of course see the logic for taking on less risk as you get closer to retirement. This is a foundational concept of personal finance and retirement planning. Is the old advice of increasing bond exposure and decreasing stock investments not applicable due to current conditions, or is it still viable? Or, should the more conservative element of one’s portfolio be invested elsewhere?
- Your Money Lasts Longer if You Move. This might not necessarily a myth, though it’s probably hard for most to truly cut expenses when moving. I suspect many people “downsize” and try to get more for their money – or use the money for their other expenses. Is that really getting your money to last longer? Plus, when moving, there are transaction costs with a home sale and purchase. Beyond that, it costs money to move and even to purchase new items for a new home, travel, etc. If people are disciplined and truly move to a much lower cost of living location and don’t take on extra expenses, I can see how money can last longer but again – it’s about discipline. Bottom line is I tend to agree with this myth.
- Uncle Sam Has Your Back. I’m as patriotic as the next American, but this is one I can agree is a myth. The reality is this: the person who has your back is YOU. Live within your means, grow the income minus expense gap, invest properly, make good decisions every day, and keep your eyes on long-term goals. If you can get some good luck as well, that helps too. But take responsibility for yourself. I think this myth is the one to be most watchful for, regarding anyone being there to support you other than your current self supporting your older self.
My Questions for You:
What do you think of this list?
Do you agree with my statements in Myth #5, about this mentality being potentially the most dangerous?
Any other retirement myths out there that you can think of?