Investing for retirement can appear to be a confusing and intimidating task. So it shouldn’t come as a surprise that plenty of retirement myths have been generated in an attempt to make this subject easier to understand and simpler.
Although these myths aren’t intended to be malicious, they won’t necessarily apply to your financial needs and goals or unique life circumstances.
Here are some of those harmful retirement myths, and what steps you should consider instead:
Retirement Myth #1: “I can deal with building my nest egg later”
Don’t discount the massive value saving and investing early for retirement can have. People naturally procrastinate with difficult tasks all the time; but unlike a term paper, putting off retirement planning can make it exponentially tougher to achieve.
When you’re younger, your capital has years to grow and compound. Although you might be in a better financial state later in life, you’ll have to make up for that missed growth by contributing far more. The lesson here for investors is to invest early and often, even if it involves smaller amounts.
Retirement Myth #2: “I’ll spend a lot less in retirement”
There are plenty of numbers circulating around the World Wide Web about what you should budget as your spending rate in retirement. Many experts recommend you plan to spend 65 to 90 percent of what you did beforehand, in order to maintain the same living standards.
Although this might work for a few, it can also leave you woefully under-budgeted. Many retirees can live lifestyles that are just as, if not more, expensive than beforehand. Traveling, for instance, can cause your budget to skyrocket.
Don’t assume that you’ll spend less in retirement, even if you relocate or downsize you home – instead, try to develop a roadmap as early as possible that accounts for major costs.
Retirement Myth #3: “Once I approach retirement, stocks will be too risky”
You asset allocation (how much of your wealth is allocated to stocks, bonds, hard assets, etc.) is a vital investment decision. Yet many will haphazardly exit stocks as their golden years approach, since “they’re too risky.”
Although stocks can be riskier than bonds and other investment vehicles, that risk can significantly lower over a longer time-frame. It’s easy to underestimate just how long retirement can last, and how long you’ll need to supplement it with stock returns. For example, if you retire at 65, there’s a fair chance you’ll need to support yourself financially for two more decades.
Instead of exiting stocks altogether, consider a conservative, “stress-tested” retirement portfolio, which accounts for longevity and your needs.
Learn more about avoiding retirement myths
At LexION Capital, we know you’re more than just another investor. Our bespoke investment advice is tailored with your exact need and goals in mind. You’ll never see “cookie cutter” advice at our firm. To learn more, schedule a conversation with us today.
