Debunking 13 Retirement Myths, Part 2
Myth #8: Your house can finance retirement. I’ve said this before — your house is not a retirement plan. Real estate investments are another matter; unlike other investments, the house you live in provides your shelter and is harder to cash in. You have to live somewhere. In order to start seeing the value of your house in cash, you have to downsize. Another option, a reverse mortgage in which you slowly sell your equity back to a bank, will leave you with no asset to leave to your heirs.
Myth #9: You’re too old to start saving. This is pretty straightforward. It’s never too late to start putting away money for retirement. Of course, it will be much more difficult to amass significant savings starting within earshot of the end of your career, and some sacrifices will be necessary. That might mean downsizing your house and socking away the difference or cutting back expenses.
Myth #10: Short-term market swings don’t matter. This is the mantra of the long-term investor. The daily or monthly ups and downs are irrelevant because over the long term, the stock market provides returns higher than inflation. The truth is that as you grow closer to when you’ll need to access the cash value of your portfolio, those short-term swings can be devastating. That is why your asset allocation, the mix of investments, is important. As you approach retirement, your portfolio should include a smaller portion of stocks and a larger portion of low-risk investments like bonds.
Myth #11: Top priority is the kids’ college. If you can’t fund your own future as well as your children’s education, you have to make some choices. You could always borrow money for your kid’s education while you can’t do so for your own retirement. Now, you could change some of your expectations, such as an adequate rather than dream-fulfilling retirement home or state schools rather than Ivy League schools for your kids, but when it comes down to it, your own needs come first. At least that’s what the financial community generally believes.
Now you can hope that if you help your children pay for an excellent education, they will get excellent jobs with excellent paychecks, and will use their funds to support their parents in retirement and old age. But no matter how much you spend on an education, that’s never a sure thing.
Myth #12: Decent savings plan = early retirement. Early retirement itself is almost a myth. You’re going to have to be very aggressive with savings and investing if you intend on ending up with a portfolio that’s going to allow you to live off its own income for 30 to 40 years or more. Are you saving one third of your pay after taxes? If not, you’re not on the path to early retirement.
Myth #13: You’re bound to mess up your 401(k). 401(k)s can be easy, but with companies offering a multitude of options, and in some cases making it difficult to determine the true cost of funds, it has become much easier to make a mess. Companies have countered this by offering financial guidance for their employees enrolled in the retirement investment plans. Companies often automatically enroll new employees in 401(k) with default options, which are usually good enough if never touched, only increased, to keep a solid investment plan in gear.
Myths exist because they resonate with enough human minds to be able to convince people of their truthiness without much support.