Knowing Better

Retirement misconceptions that could hurt you down the line

Saving for retirement can be a tricky endeavor. However, like most things in life, the more you know, the easier things become. To that end, let’s clear up some common misconceptions about retirement that can hurt you down the line.

You Need Five Times Your Salary Saved

According to a recent report, about 50 percent of adults think that they need to save five times their salary (or less) to have a comfortable retirement. In fact, that figure is much too low. As USA Today notes, you’ll likely need about 10 times your salary saved. Think of it this way: If your final working salary is $60,000, and you saved five times that, you’d have $300,000 saved. If your retirement lasts the average length of time — about 18 years — that’s just $16,666 per year. Even combined with Social Security, that’s not usually enough. It’s always better to save way more than you think you’ll need for retirement.

You Can Withdraw Between 10 and 15 Percent of Your Retirement Investments Annually

In the same retirement study, almost a third of respondents said they believed they could withdraw between 10 and 15 percent of their total portfolio. In reality, that’s way too high. If you take that much out each year, you’ll run out of funds quickly. A better idea is to follow the “4 percent rule” — you take 4 percent out during your first year of retirement, then increase it every year to account for inflation.

The Market Has More Bad Years Than Good Years

The market is your retirement friend. Unfortunately, many people don’t see this. That retirement study found that 72 percent of Americans believe the market had more negative returns than positive returns over the past 35 years. The truth? The market had 26 positive years during that time span. Let the market work for you and your retirement will be better off for it.



Chris O'Shea

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