Retirement is a big milestone, and it’s natural to have questions about how to manage your money. Unfortunately, there’s a lot of misinformation out there. Let’s bust some common retirement myths so you can make smart choices and enjoy your golden years.
1. Myth: “Never Touch the Principal – Just Live Off the Income”
Reality: This old-school advice can actually hurt you in the long run. While it sounds good in theory, sticking only to income can leave you vulnerable to inflation. Think about it: the cost of everything goes up over time. If your income (like stock dividends or bond interest) stays the same, you won’t be able to buy as much. A good retirement plan often uses a combination of income and principal to keep your lifestyle comfortable. It’s about making sure your principal keeps up with inflation.
A financial professional can help you figure out the right balance by considering things like:
- How much prices are likely to rise (inflation)
- Ups and downs in the stock market (volatility)
- How long you might live (longevity)
- Taxes
They can also help you create a diverse investment strategy that aims for growth and generates income, which could make your money last longer.
2. Myth: “Cash Flow Should Come Only from Bond Interest and Stock Dividends”
Reality: Relying only on interest and dividends may be a risky strategy. Here’s why:
- Taxes can take a big bite out of your bond interest and stock dividends.
- It can limit how much your investments grow, impacting on your total return.
- You might have to take on more risk to get enough income, increasing the volatility of your portfolio.
A better approach might be a “total return” strategy. This means focusing on the overall growth of your portfolio, including both income and the increase in value of your principal. A financial professional can help you balance investments that produce income with those that have higher growth potential, which can be a smart move for your long-term security.
3. Myth: “Your Bond Percentage Should Equal Your Age”
Reality: This is a popular rule of thumb, but it’s not always the best approach. Everyone’s different, and your investment strategy, including your bond percentage, should reflect your unique situation. This rule tries to simplify asset allocation, but it often falls short.
Things to consider include:
- Your overall financial picture
- How long you expect to live (longevity)
- What you want your retirement to look like
- Other income sources (like Social Security or a pension)
A financial professional can create a personalized plan for you that can be adjusted as your needs change.
4. Myth: “Only Withdraw 4% (or 5%) of Your Portfolio Each Year”
Reality: The “4% rule” is a helpful guideline, but it’s not set in stone. Your ideal withdrawal rate will depend on several factors:
- What’s happening in the market (volatility)
- What your portfolio is made of (asset allocation)
- How long you’ll need the money to last (longevity)
- Inflation
- Healthcare costs
A financial professional can help you create a flexible plan that can be adjusted based on your circumstances and market conditions, helping your savings last.
5. Myth: “I Don’t Need a Financial Professional”
Reality: You can manage your own finances, but a good financial professional brings a lot to the table:
- A personalized financial strategy, including asset allocation and withdrawal strategies.
- Objective advice, especially during market ups and downs (volatility).
- Smart, tax-efficient ways to withdraw money, considering tax-advantaged accounts.
- Help with estate planning.
- Regular reviews and adjustments to your portfolio.
A financial professional can help you make complex financial decisions and give you confidence knowing you’re on the right track.
The Bottom Line
Retirement planning can feel overwhelming, but avoiding these common myths is a great first step. Remember, there’s no one-size-fits-all approach. Your plan should be as unique as you are.
Let’s schedule a complimentary meeting. We can provide personalized guidance, help you avoid potential pitfalls, and create a plan tailored to your specific needs and goals. With the right approach, you can look forward to a more secure and enjoyable retirement.
Before investing, please consider your investment objectives and risk tolerance and how they correspond to the expenses, charges, and risks (including the possible loss of principal) of the product you are purchasing. We are not affiliated with the Social Security Administration or any other governmental agency. Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or protect against losses. We do not provide tax or legal advice or services. Always consult with qualified tax and legal advisors concerning your own circumstances. This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues.
