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Money Matters - Don't Fall for These Common Retirement Myths

Planning for a long, happy and financially secure retirement is hard enough. The last thing you want to do is use the wrong information for that planning. Retirement myths are everywhere these days, and falling victim to one of them could sidetrack your retirement and make life unnecessarily stressful.

If you believe one of these retirement myths, it is time to rethink your planning and start making the necessary adjustments.

Myth #1 - You Can Withdraw 4 Percent from Your Nest Egg Every Year No Matter What

The much vaunted 4 percent rule is more of a guideline than a hard and fast rule. The amount you can safely withdraw from your nest egg will depend on a number of factors, from how old you are when you retire and how many years you plan to spend in retirement to whether or not you have a pension and how much Social Security income you can expect.

The returns you achieve with your investments can also have an impact on how much you can afford to withdraw in a given year. If you are lucky enough to retire on the cusp of a bull market, those high stock market returns may allow you to withdraw 5 or even 6 percent in a single year. However, if the market goes down just after you retire, you may need to scale back that initial withdraw to 3 percent or even less. The key is to be as flexible as possible. If your nest egg has a great year, take some of that money off the table and sock it away in a money market account or CD. You can then use that extra cash to cover your expenses during those inevitable bad years.

Myth #2 - Your Expenses Will Go Down in Retirement

You cannot simply assume that your expenses will be lower once you leave the workforce. If you plan to travel the world and stay in the best resorts, you will probably end up spending more than you did while you were working. If you plan to hang out with the grandkids and have fun closer to home, you may very well spend a lot less.

No matter what, the key is to develop a realistic budget for your retirement, based on what you plan to do and what you want your retirement to feel like. You may not be able to predict your spending to the penny, but you should be able to come up with a good ballpark figure. Find a retirement calculator (there are many freely available on-line). Plug that figure in to predict how much you need to save and invest.

Myth #3 - Saving is a Thing of the Past

Many retirees think that saving is now a thing of the past. After all, they have spent their entire working lives saving aggressively and building up a substantial nest egg. It just makes sense that additional savings will no longer be required.

While it is true that you will no longer be contributing to your 401(k) or putting money into an IRA, saving money should still be part of your retirement lifestyle.

Adopting a pay yourself strategy is one of the best ways to make your money last throughout retirement. Directing a small portion of your Social Security, pension or other monthly income into a savings account is a great way to prepare for unexpected expenses and avoid drawing on your stock market money too soon.

Myth #4 - Avoid the Stock Market

Another myth is that retirees should avoid the volatility of the stock market and put all their money in bonds and certificates of deposit. While it certainly makes sense to have part of your money in those fixed-income investments, it is very unlikely that they will earn enough to keep up with inflation over the long term.

Keeping a portion of your money in the stock market can provide that growth potential and inflation protection. While it is true that stocks are volatile, over the long term they have had an excellent track record. A widely diversified stock market investment like a low cost index fund should be part of your retirement portfolio.

Take Away: Myths have a way of staying with us. However, times are continually changing and new knowledge is available that can help make your retirement years the best you h

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