When it comes to retirement planning, many people in the workforce don’t really think about it. They put money into the 401k provided by their employer and focus on their financial needs in the moment. Unfortunately, this lack of true planning leads to a lot of misconceptions about retirement best practices. Here are seven assumptions you may be making about retirement, along with the reality you need to be aware of.
1. Investing Money Is Too Risky.
As with many things in the financial world, not every form of saving or earning is best for every person. Yes, investing comes with risks, however, if you have an adviser you can trust and who has your best interests in mind, they can help you make wise investment decisions. If you regularly invest while keeping the costs low, then, in the long run, investing may provide you with some of the greatest returns of any asset.
2. Spending Less Time in Retirement Means Spending Less Money.
This assumption seems sound at first: you won’t be adding money to retirement funds, transportation costs will drop because you no longer have a commute, etc.. But the truth is, you’ll have more leisure time to travel and take advantage of opportunities you couldn’t while working. And according to a recent report from the IRS, during the first three years after claiming social security, half of taxpayers spent more. This isn’t even accounting for potential medical bills.
3. You Can Depend Entirely on Your Family To Take Care of You.
Everyone’s financial reality is different. Assuming they’re willing to, perhaps your children are well off enough to take care of you. However, this is as big a risk as investing money. They’ll have their own financial obligations to be concerned with — paying off student debt, paying down a mortgage, or costs of raising their own children, etc.. Depending solely on them for your retirement will diminish what you can do with your retirement, and it may make it harder on everyone if medical emergencies arise.
4. Selling My Business Will Fund My Retirement
As we mentioned in a recent post, this assumption is built on a host of other misconceptions, like assuming that you’ll get the price you believe reflects the value of your business, or even that your business will sell at all. Selling your business isn’t necessarily a bad piece of your retirement planning, but it does require having a succession plan in place now, and it shouldn’t represent your entire retirement plan.
5. You Can Rely on Your Employer’s Pension To Cover Your Retirement
Companies that offer pension plans are disappearing, and among those that do offer them, the pensions are shrinking. Even among federal jobs that provide satisfactory pensions, they may shrink or be eliminated in the future based on the economy or shifting expectations of responsibility. Counting on a pension also means working at the same company for long enough to qualify for one, and then staying longer to qualify for one that’s a reliable stream of income. If you’re already close to retirement, this may work out for you, however, if you’re younger, it’s probably better not to count on it at all.
6. You Can Wait Longer Before You Start Saving for Retirement
This is the easiest assumption to make. Sometimes it’s because people want to spend freely as they enjoy the present, and sometimes it’s because finances are simply too tight to want to think about the seemingly distant retirement age. But the truth is, starting your retirement planning now allows you to make the best decisions for your current financial position, which in turn allows you to make the best of your retirement later.
As you can see, believing these myths could hurt you in the long run and make having enough money to fund your retirement that much harder. Instead, you should commit to serious retirement planning and get in touch with professionals who understand retirement best practices. This will help you develop a diversified plan to save enough money to meet your unique needs and desires once you retire.