With approximately 10,000 baby boomers turning 65 each day, retirement is certainly weighing heavily on the minds of this generation.
While many have planned for retirement for years, others realize they are not as prepared as they thought they were.
There are several misconceptions that can prevent a baby boomer or even a Gen Xer or millennial from making the right decisions when it comes to investing for retirement.
They may make a costly mistake that can reduce their ability to retire when they truly want to.
Nine members of Forbes Finance Council share the most common misconceptions about investing for retirement they have seen among clients, as well as discuss how they can be avoided.
Here’s what they had to say:
1. All Savings Should Be In IRAs And 401(k)
You will not have the option to retire early in many cases if all of your money is tied up in retirement accounts such as IRAs and 401(k). Having additional money saved and invested within non-retirement, taxable accounts allows you to access your funds at any time prior to age 59 and a half, so you don't end up "retirement rich and cash poor" if you're considering retirement at age 58 or earlier. - Evan Kirkpatrick, Wendell Charles Financial
2. Retirement Is A Finish Line
Plan to invest to — and through — retirement. Many investors see retirement as the finish line. It's really the beginning of the third stage of your life, and with people living longer, you need to plan for a lengthy retirement. Have a real financial plan that covers tax efficiency, cash flow management, wealth enhancement, and estate planning, etc. - Lance Scott, Bay Harbor Wealth Management
3. Investments Don't Need To Grow With Your Income
One of the most common mistakes or misconceptions I encounter is that people generally don’t increase the amount they put away for retirement in line with any increases in income. It’s important to keep that increase steady and correlate it to any increase in income and future anticipated lifestyle needs. Putting away more today helps with today's tax bill, as well as tomorrow's nest egg. - Jared Ross Weitz, United Capital Source Inc.
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4. Invest In Bonds As You Grow Older
There is an old maxim saying that as you grow older, you should own less stock and more bonds, or the percentage of your portfolio held in bonds should equal your age. While bonds used to seem like a safe haven, with interest rates now so low, some bonds may be worth less in future if interest rates rise substantially. Tilting your portfolio towards stocks may be necessary to help achieve your goals. - Ismael Wrixen, FE International
5. Distribution Isn't A Major Concern
Distribution planning is all about making sure you don't run out of money in retirement. Accumulating assets is what you do leading up to retirement. Make and save as much money as you can, so that you live comfortably when you stop working. Distribution planning is about significantly reducing market risk and transitioning your assets to pay you a stable income during your golden years. - Alexander Koury, Values Quest
6. Saving 10%-15% Is Enough
Many people are saving 10-15% of their income, which works if you started in your 20s. However, if you started saving later in life, then you are playing catch up. You need to drastically increase your savings to about 20% or more. Also, make sure you understand the power of compounding interest. If you grasp it, you're likely to be set for retirement. - Justin Goodbread, Heritage Investors
7. Start Investing Only When You Have Enough
"I don't have enough to invest." It's a common notion, and we can find loads of reasons or excuses to put off investing, but even small amounts over time can make a big difference in future savings. Automate your investing and build it into your monthly budget. - Gregory Ostrowski, Scarborough Capital Management
8. Financial Advisers Will Only Act In Your Best Interests
Nearly half of Americans believe all financial advisors are required by law to act in their clients’ best interests. But only fiduciaries are legally required to act in your best interest, and the cost of hidden fees in your investments can add up, decimating your retirement savings. Ask any potential advisor if they are a fiduciary and if the answer is anything but a firm “yes,” walk away. - Jay Shah, Personal Capital
9. Retirement Means Your Life Is No Longer Useful
The most common misconception is rooted in a definition of retirement that suggests retirement is a "disposition of an asset over its useful life." This assumes that someone's life is no longer useful. This idea is the exact opposite of truth. The transition into the second half of life is full of wisdom, time, and, hopefully, money. - Darryl Lyons, PAX Financial Group LLC
