Top 5 Retirement Myths

Retirement is a dream for most working people, and one that is attainable with the right planning. But there are numerous pitfalls that can derail your retirement dreams, many based on misconceptions. Here we'll cover five of the most commonly held myths to keep you on the path to a lasting retirement.

You Don't Make Enough Money To Invest

Many people don't save for retirement because they think they don't make enough money to make a difference. This is very often not the case. For example, putting $100 a month aside for 30 years with an average annual gain of 8% will compound to $149,000. Even though your total deposits would only amount to $36,000, the effects of compound interest more than quadruple the amount you put in. And the more you're able to add, the greater you eventual savings will be. Try our free compound interest calculator to see how much monthly deposits will add up to for you.

If you don't think you have $100 a month to put aside, think again. Is there anything you're buying or paying for each month that you don't actually need? What's more important, cable television and your cell phone, or your retirement? Do you eat out at expensive restaurants? The more you're able to save now, the sooner you'll be able to retire and the more comfortable your retirement will be.

The Market Is Too Risky

Especially since the 2008/2009 stock market collapse, many people are avoiding investing because they think the risk is too high. What they don't realize is that leaving their money in a checking or savings account will lead to a guaranteed loss due to inflation, which averages near 4% each year. And, by taking their money out of the market when it hits bottom, they don't make their money back when the market goes back up. In addition to losses from inflation, those who don't invest their money miss out on the tremendous effect of compound interest over time. Smart investing through diversification, asset allocation, and not attempting to time the market will mitigate the majority of market risks. The alternative to zero risk is loss.

Guaranteed Market Returns

The other side of the coin (to market risk) is assuming guaranteed returns at a certain level. Past performance is not a reliable future indicator and you should expect earnings/loss variations. If you invest wisely though you should see a good return over and above inflation in the long run, but be sure to leave some wiggle room.

You'll Choose The Best Investments

The vast majority of professional investors do not beat market averages, and the odds of anyone doing so year after year are slim to none. Making money by frequently buying and selling is possible (but not likely in the long run) especially when the market is moving up solidly, but chances are you would have faired significantly better sticking to index funds and avoiding transaction costs. Choose a diversified mix of index funds including domestic, international, and emerging markets, along with commodities and real estate, and you'll be far more likely to retire with more.

You'll Rely On Social Security

Don't bet on being able to survive on social security alone. With the current levels of government debt something has to give, and it will likely be social security benefits at some point in the future. If possible, try to save and invest enough that you don't need social security at all. Then, whatever you do get from it will be a bonus.