The Misconceptions of Conventional Retirement Wisdom

When it comes to retirement, and how to financially get there, there are several widely accepted misconceptions that have been born out of conventional planning. Traditionally, goals are set in regards to how much to save and how to invest said savings so that anyone can fund their Golden Years. It sounds simple, but the actual process couldn’t be further from that. In reality, many retirees simply hope for the best as they blindly draw down their savings, not at all prepared for the ups and downs of the stock market, inflation, medical and caregiver expenses, which combined have the capability of derailing any “hope for the best” strategy.

Here’s a look at some of the most common retirement misconceptions, from the financial experts at Kiplinger, and how conventional wisdom isn’t always that smart.

Misconception: 401(k)/IRA plans offer retirement income.

These retirement vehicles offer good ways to save because you can build them tax-deferred. Plus, they already have a retirement drawdown strategy built-in, in the form of required minimum distributions. There’s just one problem though: You are required to take distributions starting at age 70 ½, regardless if you need them or not. This is not a “true” income strategy, because “income” consists of money received without any other financial effect, yet withdrawals impact your total savings. You can’t avoid paying taxes, here, but you can minimize them.

Misconception: Retirement calculators are accurate.

One of the first things people do is try to figure out just how much money they will need to save before retiring. Enter the online retirement calculator. While it’s OK to fill in the blanks and see what figure is spit out, be sure to realize that this is just an estimate, and not a guaranteed amount. Another problem: calculators give you a rough idea of how much you need to accumulate, but it won’t address your personal situation.

Misconception: Set your asset allocation and forget about it.

Diversifying your money in your 401(k) or IRA is critical, and most investors know this. But what many fail to realize is that when you are about to retire, you need to reconsider your pre-retirement asset allocation and add other choices into the mix. The plan you developed at 35 won’t work at 65. Your asset allocations should be reviewed periodically and adjusted accordingly.

Misconception: All annuities are bad.

If you pay attention to social media or advertising, you’ve probably heard your fair share of anti-annuity spewing. And while some annuity products have a well-deserved reputation, the headlines don’t distinguish between these and other types. An income annuity, for example, is the only product that can provide guaranteed lifetime income, similar to Social Security or a pension. For many people, it makes sense to include an income annuity in their portfolio. But it should never be the only tool in your retirement toolbox.

Misconception: All reverse mortgage strategies are bad.

Similarly to annuities, an industry has grown just to convince you that this is true. Yet again, this option might provide benefits as part of a diversified retirement strategy for some. A properly managed reverse mortgage can provide peace of mind in the form of tax-free cash flow and long-term liquidity for a retirement plan.

The bottom line is that while saving money is simple, your approach to retirement is not. Concentrating on the income power of your savings should help though when making decisions about your strategy.

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