My monthly Schwab statements include a financial newsletter. I usually toss these in the trash after scanning them because, quite frankly, they don't have much information that I don't already know. However, the April issue pleasantly surprised me. Although it still doesn't have much info that is new to me, it does feature an article that caught my eye titled "Five Retirement Myths To Ignore." What struck me was that this is the first article I've seen from a major financial source or major media source that states what I feel to be the major problems with current retirement advice. It's about time someone started telling it like it is. Below are their five myths. They commented on each one in the article, but I'll just give you my comments.
- You'll only need 70% to 80% of your pre-retirement income. Health care expenses are going through the roof and, once retired, it's a good bet you will no longer be covered by employer health insurance. This alone is enough reason to ignore this advice. If you plan to travel more or buy nicer things, you'll definitely need more than 80% of your old income. Personally, I want my standard of living to rise when I retire, not stay the same or go down, so I plan to make more during retirement.
- You'll be in a lower tax bracket. Federal deficits are going through the roof. At some point, taxes will have to be raised. And remember that withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income - the most heavily taxed income there is. Thank goodness for the Roth IRA!
- You'll keep working. Who thinks this? Retirement means you are no longer working!
- The stock market will save you. By the time you retire, you will not have a long enough time horizon to ride out market fluctuations.
- There's always Social Security. Haha!! Yeah, right!
4 comments:
I agree with you on 1, 2, and 3. I'm more optimistic about SS (5) than you are.
As for 4, the strategy is to move into less risky stocks/funds as one nears retirement (say starting at 55 years of age or so) so that a market downturn won't hurt you too much if it happens too close to your retirements. So, instead of investing in small cap/micocap growth stock, one slowly transfers that money to, say, large cap blue-chip something or other, or even money market funds. Something less volatile.
We think it's possible to retire and travel widely, on far less than 80% of pre-retirement income. See how at our blog, http://patandlewtravel.wordpress.com/.
In college, my business professor told me to forget about Social Security. I accepted this, believing that one should always plan for the worst case scenario.
I'm not counting on SS, either.
However, in retirement, I could probably live on 50% of my current income, let alone 80%. By then, I'll have no mortgage, no car payments, no college payments, wont be funding two kids' lifestyle, etc.
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