Have you ever watched the show MythBusters? I love how Jamie, Adam, and the MythBusters Team scientifically debunk or uphold myths that are prevalent in our society. There isn't a myth they won't take on, and the show got me thinking about retirement planning myths that need to be busted as well. I found six that need some serious busting to remove the roadblocks in the way to a successful retirement.
Myth 1: Saving for retirement requires a lot of money
Reality: This is probably the most common myth I encounter, and also the most misguided. A large portion of people think that they must be exorbitantly wealthy to seek the services of a financial advisor and begin saving for retirement, but being a millionaire is not a requirement to start saving for retirement. In fact, it's even more vital for those with lower incomes to be planning ahead. Starting early is key. Opening a mutual fund account with as little as $20, and making a minimum contribution of $20 per month is a great way to start. Think of it as trading one less latte per week for a start on your retirement portfolio.
Myth 2: I have plenty of time to begin saving for retirement.
Reality: You have less time than you think! The amount of money needed for retirement continues to increase as life expectancy increases. You want to ensure that you won’t outlive your savings and be forced to enter the job market again in your 70s. Sadly, the Federal Reserve released information last year that Americans’ personal savings are again decreasing after a brief increase in savings during the Great Recession. Waiting can make for uncomfortable consequences, so I encourage investing now.
Myth 3: I have a financial planner, so I don’t need to know anything about investing for retirement.
Reality: I run into this misguided mindset more often than I'd like. One of the most important parts about investing is educating yourself. Your advisor is working with you to plan for your livelihood and your future. Having a concrete understanding of investing strategies and principles not only ensures that you fully understand where your money is going, but also assists you when you need to ask the really difficult, serious questions. These questions and your knowledge will ensure you are more prepared for your retirement.
Myth 4: Retirement planning is all about investing.
Reality: If you are only thinking about investing as a way to meet your retirement goals, then you are missing some key building blocks. Meeting your long-term financial goals is dependent on having a solid financial plan to get you there. Smart investing can be enhanced with budgeting for day-to-day expenses, maintaining the right insurance coverage and making smart tax decisions. Having a financial planning professional by your side can help you make great decisions in all of these areas.
Myth 5: I’m going to spend less money once I retire.
Reality: This isn't always the case. Many impending retirees are convinced this will be true, but the reality is far different. While most people’s spending decreases in the later years of retirement, spending actually increases in the initial years of retirement. The early years of your retirement are a time when you will want to travel, cultivate new hobbies (or revisit old ones), and get out and do the things you've always wanted to do but couldn't make time for before. Retirement can be an exciting and enjoyable time. If you take this myth too far, you may end up pinching pennies when you'd rather be out enjoying your freedom.
Myth 6: Saving for my kid’s college is more important than retirement right now.
Reality: While the looming cost of college for a son and/or daughter may seem like a more pressing financial concern, there are many more ways to pay for college than retirement. There are loans, grants, and scholarships available to pay for college. However, “retirement loans” aren’t the norm. Socking away money for retirement while saving for college education is smart. Your kids will thank you when they don’t have to take care of your financial needs when you enter retirement age.
Invest What You Can, as Soon as You Can
Most Americans aren’t contributing enough to their retirement fund to retire by age 65, and many fear they’ll never save enough based on the results of a 2014 survey by Capital One. If you are in that camp, I hope you will consider how the above six myths are holding you back in your financial planning for retirement.
Help me debunk these myths by sharing this post with your friends! And let me know what myths you’ve encountered by tweeting @Lindsey2Wealth.