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Don't Let These 3 Retirement Myths Hold You Back

By Sam Swenson, CFA, CPA - Mar 3, 2021 at 7:40AM

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It's important to ignore the noise when it comes to your decision to quit work.

The only real guarantee you'll have in creating your retirement plan is that it won't look like anyone else's. Everyone has a unique set of circumstances that includes both financial and non-financial risks and considerations.

While it's important to get the financial piece right, don't forget that one size most definitely does not fit all when it comes to retirement planning. Below, you'll find some of the more popular retirement myths -- and their corresponding realities.

1. It's an all-or-nothing proposition

The antiquated model of a working career looks something like this: find a job, stay at the same company for three or four decades, and retire when you've saved enough to fund a somewhat lengthy retirement. This model also includes the assumption that when you're done, you're done. When you retire, earned income will fall to zero, and you'll need to consider other means of supporting yourself and your spouse. 

A really exciting aspect of the recent technological revolution is that this career model is being upended. Even if you remain in a conventional working career for the majority of your life, the options for remote, part-time, and freelance work are now essentially unlimited. The idea of semi-retirement -- when you've quit working full time but still earn some income -- gives people more control over their time and the ability to earn supplemental income that reduces stress on their investment portfolio.

Another creative idea is to take "mini-retirements" throughout your working life to break up the monotony and regain some level of freedom. Luckily, in 2021, there are innumerable ways to work in a location-independent fashion while still earning a decent income. Retirement should no longer be considered an "on or off" state but a fluid one that provides more choice as to how you spend your time. 

A group of small white piggy banks against a green background.

Image Source: Getty Images.

2. The future will be like the past 

Many people use the 4% rule to determine if they have enough saved for retirement. Adhering to the 4% rule means that you're able to withdraw 4% of your assets (annually adjusted for inflation) once you've accumulated 25 times your living expenses. For example, according to this rule, if you intend to spend $75,000 per year in retirement, you'd need $1.875 million to fund your inflation-adjusted costs. You have a very low probability of running out of money over a 30-year time horizon if you stick to this rule. 

The main issue with the 4% rule is that it's based on a study that uses outdated assumptions. First, the study assumes a real bond yield of 2.6%, and today's expected real bond yields are at or below zero. Second, many people who subscribe to the Financial Independence, Retire Early (FIRE) Movement want to fund retirements of significantly longer than 30 years.

Lastly, the 4% rule assumes that spending will remain constant across your retirement, only increasing by inflation on an annual basis. But life isn't a math problem, and expensive surprises can and do happen. 

3. Your portfolio is all that matters

Once you've saved enough to retire -- undoubtedly an amazing accomplishment in and of itself -- you've really only figured out one aspect of the retirement equation. Perhaps more important is figuring out exactly how you'll spend your time, if and where you'll travel, and how you'll continue to enrich yourself without a working career.

In doing so, it's advisable to evaluate where you are in life and what you want to accomplish -- and of course, this needs to mesh with your spouse's wishes as well. Life comprises both financial and non-financial elements, so try not to get too wound up about the money past a certain point. 

Don't be taken in by others' advice

Common advice is just that -- common -- but it isn't necessarily applicable to you or your life situation. Retirement myths are often propagated by those who have something to gain from you or want to question your decisions if they seem out of the ordinary.

Try to understand the reasons behind the myths and decide for yourself if they apply to you. Maybe they do, but if they don't, be courageous in charting your own course in retirement and live your life on your own terms. 

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