Planning for retirement is a far better move than just winging it. But in the course of your planning, you may come across certain pieces of advice that could end up leading you seriously astray. Here are a few such myths you must avoid at all costs.
1. You can live on Social Security alone if you make lifestyle changes
Most seniors need to replace about 70% to 80% of their pre-retirement income to live comfortably. Now there's some wiggle room in this formula, and you may do just fine replacing, say, 60% of your former income.
Image source: Getty Images.
But do you think you'll manage to live comfortably on 40% of what you're used to earning? Probably not. As such, you shouldn't plan to retire on Social Security alone. Those benefits will only replace about 40% of the average earner's pre-retirement paycheck, and if they're your only income source, it could set the stage for years of financial distress.
Even if you're willing to adopt more frugal habits in retirement, like cooking instead of dining out, that may not be enough to compensate for such a steep drop in income. And so even if you don't have a lot of money to contribute to an IRA or 401(k) plan, make an effort to sock some amount away on a regular basis so you're not overly reliant on Social Security once retirement begins.
2. Relocating to a cheap part of the country can make up for an absent nest egg
It's true that in some parts of the country, a limited income can go further than others. But that doesn't mean you should intentionally neglect your savings with the idea that you'll just relocate to the cheapest area you can find.
There are certain basic expenses, like healthcare and housing, that will eat up a large chunk of your income no matter where you move to. And so while you might manage to slash your living costs by, say, 10% to 20% by moving from one state to another, that will only help so much if you're coming into retirement with no savings whatsoever.
3. You shouldn't own any stocks as a retiree
If you do manage to bring some savings with you into retirement, that money shouldn't just sit in cash. Rather, it should stay invested so it continues to grow.
Now you'll often hear that owning stocks in retirement is risky move you should avoid. But actually, not only is it OK to hold stocks in your portfolio as a senior, but you should hold stocks so your IRA or 401(k) can keep gaining value even as you take withdrawals.
In fact, depending on your tolerance for risk, you may want to kick off retirement with a good 50% of your assets in stocks, provided you have the rest in safer alternatives like bonds and cash. But dumping your stocks completely could cause your nest egg to dwindle faster than you'd like it to.
The more thoroughly you plan for retirement, the more likely you'll be to make the most of it. But don't led bad advice lead you astray along the way. If anyone tries to sell you on these tidbits, run the other way -- or, better yet, set those advice-givers straight so they don't end up making a big mistake.
