Much of the conventional wisdom about retirement is not based on facts. If you accept these fictions as fact, you take greater risks with your future than you realize. Here are three retirement myths that could jeopardize your retirement security.
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1. You will spend less in retirement. Many people think that once they retire, they won't spend as much money as they did while they were working. Once your house is paid off and your kids move out, you will have eliminated two big expenses. You can also eliminate the costs associated with going to work, such as travel and work attire. But all this cost cutting may not work out as planned. Your children may still require at least occasional financial support. Many people don't pay off their mortgages by the time they retire because they refinanced the home to pay for college costs for their children or other large expenses. And even though retirees don't go to work, they have lots of free time to fill up. Often, they spend that time shopping and eating out--two very expensive pastimes.
Many working people spend more money on the weekends than during the week because they have more time to spend. When you retire, everyday is like the weekend. Unless you find part-time work or volunteer opportunities, you may be tempted to go out and spend just to escape the boredom of sitting around the house. Here is how to calculate how much money you need to retire.
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2. You should shift to conservative investments as your retirement date approaches. Many people think they have to become very conservative with their investments as their retirement date approaches. But ultra-conservative choices are not the best investments for recent retirees. I'm not saying you should fill your 401(k) with only equities, but I do encourage you to rethink your investment time horizon. If you retire at 65, you have to plan on living another 20 years at least.
Your retirement date has nothing to do with how you should invest. It is much more important to focus on how long you think you will live. At 63, you have to invest so that your money will last at least another 22 years. The fact that you are planning to retire in 2 years has nothing to do with how to invest your money. You need to focus on creating income over your lifespan.
3 Retirement Myths That Jeopardize Your Security
