The top 10 retirement myths

Jan 12, 2012, 10:31 a.m.

Retirement planning involves many different road maps that may all direct you to your ultimate destination. However, "retirement folklore" is stuffed with numerous misconceptions and myths. Unfortunately, these myths are often portrayed as truisms and supported by published articles and tips.

Most of these untruths come with a positive upside for the retirement financial equation. Consider the top 10 retirement myths and adjust your plans accordingly.

You must have a large income to build a solid retirement fund. This is often the "king" of retirement myths. While it is easier to create a large nest egg if you enjoy huge cash flow for many years, even modest wage earners can build a large retirement fund. The keys are proper retirement planning and execution--keep at it.

You cannot build a large retirement fund with a 401(k). Many people erroneously believe that the annual deposit restrictions prevent you from creating a large retirement stash. Not true. Depositing 10 to 15 percent of your gross salary religiously will create an impressive retirement nest egg.

Baby boomers will crash the stock market when they cash out. While baby boomers may tax the health care industry and services, they will create no disasters in the stock market. The primary investment group in the market are the wealthiest Americans. It is unlikely that this group will suffer extreme cash flow shortfalls requiring a full cash out. Remaining baby boomers, the vast majority, are not major stock market investors.

Without a defined benefit pension plan, you face retirement income trouble. While traditional pension plans formerly covered millions of working Americans, only 10 percent are now members of these programs.

Social Security will crumble and not be there for you. You have no doubt heard and read all of the dire warnings about the Social Security trust fund running out of money to fund benefits. However, should the U.S. government do absolutely nothing this event should not occur until 2041.

Your home can securely finance your retirement needs. Whether in a booming or crashing real estate market, your home can seldom provide sufficient cash to fund your retirement. Even getting a reverse mortgage will only allow you to borrow around 50 percent of your estimated home equity.

You are too old to start saving for retirement. Certainly, the earlier you start the larger the retirement fund you will enjoy. However, if you approach retirement planning from a "how much do I want, then back into an amount you need to start saving now" approach, you can make up much lost ground.

Your kids' college expenses should be your top priority. If your children have agreed to support you during retirement, this plan makes sense. In lieu of such an agreement, understand that you will lose the immense power of compounding (earning interest on interest) in your retirement fund. Let the kids finance most of their education on their own.

You can create a savings plan that allows you to take early retirement. Unless you enjoy very high cash flow at an early age, it is challenging to construct a pure savings plan that generates sufficient balances to allow you to retire early. Retiring in your 50s requires carrying health care insurance (no Medicare until age 65) and living expenses without full Social Security benefits (until age 66).

Short-term stock market volatility do not affect your retirement fund. Regardless of your age, if your portfolio contains all stocks, short-term market swings can set your fund back for years, as you struggle to get back to where you were.

These retirement myths can damage your retirement planning program. However, understand that you might use some of these to your advantage to avoid pitfalls and build a prideful -- and sufficient -- retirement fund.

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