Quick Note: As of this writing (4-8-2020), the stock market has been showing strong gains. After all this awfulness, the market is only down 16% for the year. This is absolutely incredible to me. The one year return (from last April to this April) is only -6%.
Ten Biggest Retirement Planning Misconceptions
After 19 years of “in-the-trenches” planning experience, I can tell you that I consistently see the same misconceptions come up time and time again among the Baby Boomer generation. Do not trivialize these misconceptions. It only takes one or two to really mess up your retired years.
For example, a very nice woman, who was about to retire, once told me that she didn’t plan on ever spending any or her savings or investments. When I inquired as to why, she said, “You never know, I worry about medical costs. There is a history of cancer in my family.”
I replied, “If you are enrolled in Medicare and if you have a Medicare supplement, the most you can be ‘out-of-pocket’ is less than $10,000 each year. If you get cancer and have a $400,000 medical bill, you are only responsible for less than $10,000 of it.”
Without that tiny tidbit of information, this woman would have made every financial decision for the rest of her life based on a faulty understanding of the facts. She would have lived small, worried about money, and feared the future- for no reason.
So let’s make sure you live the life you deserve.
“I need to have $1,000,000 to retire.” There is no standard amount of money that you need to possess in order to retire. It all depends on your monthly budget and your expectations. Someone with $200,000 in savings and a budget of $3000/mo is probably going to be just fine. Someone with $2,000,000 in savings and a budget need of $20,000/mo is probably in trouble.
“The stock market is unpredictable and dangerous.” If you still believe this fallacy, please go to www.DavidKennon.com and read dozens of my commentaries. The stock market has a remarkably consistent (and successful) track record.
“Once I retire, I am too old to invest.” The life expectancy of a healthy 65 year-old is around 90 years old. Without utilizing growth investments, such as stocks, you are missing out on a powerful tool. I’m not promoting that you put all of your money in the stock market, but a diversified portfolio of stocks and bonds is usually appropriate throughout your entire lifetime.
“Super Smart People are able to make more money investing than Normal People.” There is zero academic evidence that anyone can outperform the markets. In other words, no one has a magical secret that will make your money grow faster than everyone else.
“If the stock market crashes it could take me 10 or 20 years to recover.” Not true. It took less than four years for you to recover your losses from the 2008 crash. 2001 crash- four year recovery. 1987- one year. 1973/74- four years. 1939/40- three years. The Great Depression was only 4 ½ years. These are the worst examples in 100 years of economic history.
Just get that belief out of your mind. Markets recover faster than you realize.
“Social Security is going to go bankrupt.” I stay very close to developments within the Social Security Administration. I can find no evidence that your benefits are going to get cut. Luckily for you it is easier for politicians to kick that can down the road. My kids need to worry. You do not.
“I need to have my house paid off before I retire.” While it might feel nice to be debt-free, it is not a prerequisite for retiring. As long as your retirement budget can handle the payment, many people retire with a mortgage.
“I need to stay on top of my portfolio. I need to continually adjust my investments, watch financial news shows, and check my phone ten times a day to see what the Dow Jones is doing.” No you don’t. Believe or not, people back in the 70’s and 80’s only got market news once a week (gasp). Checking your portfolio daily makes you a worse investor. You are much more prone to making emotional decisions.
“I shouldn’t spend any of my retirement savings until I absolutely have to.” If you still believe this widely-held misconception please read my past commentaries (or listen to my radio show). It is absolutely responsible and prudent to withdrawal a reasonable amount of money from your retirement accounts each month once retired.
“Some people who invest in the stock market lose all their money.” While this may be possible if you put all of your money into a single stock or a single bond; a diversified portfolio of stocks and bonds has never gone to zero. In fact, in the past fifty years, the WORST year for an investor with a 50/50 stock1/bond2 portfolio was 1974. You would have lost about 12% overall for the year. By the way, the same portfolio would have been up 20% the following year.
1- as measured by the S & P 500
2- as measured by the Barclay’s Aggregate Bond Index