Retirement is a fact of life. Most people will eventually grow too old to generate a steady income and will want to settle down. But where will their money come from? 401 K accounts, Social Security and more help provide for those people who cannot work any more. However, there is more too it than just that. Today, we will dispel the myths associated with retirement planning and uncover the truth to help you plan for a better future.
MYTH: My retirement assets are enough to sustain myself and to protect my loved ones once I pass.
Sure, your Social Security and 401K accounts can rack you up some money for when you decide to go into retirement. However, more risk is involved and they aren’t 100% dependable. Diversifying your retirement income is essential for your retirement plan. Social Security and 401K accounts are taxable, meaning that taxes will be taken out when you decide to withdraw the money. Putting your money somewhere not tied to the stock market will provide more security to your plan.
MYTH: Retirement planning is something I will think about once I am older.
Retirement may seem far away when you’re in your 20’s and 30’s, but it isn’t something you should be putting off. Retirement is something that should be thought about early in life because starting young will help you save more over time and will cause you less stress in the future when you realize you never had a set plan in place.
MYTH: I won’t need as much money once I retire.
You’ve paid all of your loans off, why would you need more money when you’re older? Instead of working, your days will be spent off doing leisurely activities that will probably cost you some money. More money is generally spent in your free time then when you are working. What you may save after paying off your mortgage may be spent on other things such as travel, hobbies and “bucket list” activities. So, yes, you will need as much money when you retire, maybe even more.
MYTH: The Power of Compounding
Everyone believes the power of compounding will apply to retirement, however, they don’t realize that retirement doesn’t work like math. The power of compounding does exist, however, it doesn’t take in to consideration taxes, inflation, outside fees, etc. You may start saving at the age of 30 and think you will be getting x amount in return upon retirement, but you really end up getting less than that due to wealth eroding factors. To avoid disappointment, you must be prepared. Starting to save earlier is one of the ways you can do this.
MYTH: I don’t need life insurance in my retirement plan.
Many people think they can just leave their 401K and Social Security money to their kids, spouses, and other dependents and that will be enough, but that is certainly not the case. If you just depend on those accounts, you will feel crunched for money and like you can’t spend anything because you want enough money to spend on lesiure and to protect your family. Anyone who wants to leave a legacy has a whole life insurance policy. This type of policy is the best of both worlds because you are granted a death benefit, as well as a cash value that grows over time and can be used at any point in your life. This will let you enjoy your assets, while not stressing about financially protecting your friends and family once you pass.