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Four Retirement Myths Debunked

4 August 2012

When it comes to planning for retirement, there are as many theories and strategies as there are Baby Boomers. Put 10% of every paycheque towards retirement savings and save $1 million by the age of 65; downsize so you’re better able to handle expenses; and sell your stocks to put money in more secure investments. These are all just some of the theories and strategies that float around about planning financially. And while some of them are very sound, there are also some big myths that have become so commonly known, people are taking them as the final word on retirement. Here are the four biggest myths, along with the truth about them.

You should get rid of all your debt before you start saving for retirement.
When you first hear this myth, one of the biggest out there when it comes to planning for retirement, it makes a lot of sense. Why put money away when you have so many bills stacking now? And why collect interest on that debt, when you’re putting money away somewhere else?

Don’t forget that every dime you put towards your retirement will also earn you interest, giving you that much more benefit when it’s time to withdraw from those savings. And that if you wait 25 years until your mortgage is paid off, it may be too late to start saving.

That’s Crystal Wong’s point, Senior Regional Manager of TD Waterhouse Financial Planning, who says,

“While planning and saving for retirement is different for everyone, there are some basic fundamentals to keep in mind with respect to things like when to start saving, how much you need to save, and weathering the stormy markets,” she says. “An important starting point is to determine what your ideal retirement lifestyle is like, then set financial goals and work with an advisor to develop a comprehensive plan to help you attain those goals. This will help you feel more confident about your financial future.”

The older you get, the less you need financially.
Maybe it’s the fact that so many retirees do downsize their homes when they hit retirement. Or maybe it’s because they no longer have a family of four sitting around the table every night for dinner. Maybe it’s simply because people think that when you stay home all day (as is another misconception of retirees) you just don’t spend that much money. Whatever the reason, this is a big myth when it comes to retirement. And, according to a TD Waterhouse survey (which you can view in its entirety here,) 48% of Ontarians think that expenses go down the older you get.

Again, this depends on the retirement lifestyle that you’re dreaming of. Do you plan to take in all the theatre, good dining, and culture in Toronto that you missed out on when you were so hard at work? If so, life in retirement could be even more than it was pre-retirement. Or are you going to choose to move to a smaller place, and spend more time volunteering in your community? If so, then your expenses very well could go down. As always, it all depends on what you’re going to do with your money, and how much of it you plan on spending.

Whatever you decide on this one, don’t assume that living even a low-key, budget-friendly retirement will mean that you’ll have fewer expenses than you do now. Prescription costs, transportation costs, utility costs, and more are all still there in retirement, and in some cases may be even more expensive.

You need to be a millionaire to retire.
The number used to be $1 million for how much you needed to save before you hit retirement; today, retirement experts and financial planners have bumped that number up to $2 million. There will no doubt be a new ‘retirement number’ that you’ll need in the next few years; but whatever it goes to, pay no attention to any of them.

Instead of spending your time worrying that you’re nowhere close to even $1 million, spend it determining what your expenses and what your monthly budget will be. Using these figures, and these figures alone, you should determine how much you need for retirement – not someone else.

Life expectancy stands at 78 years.
Again, something that was once true, but just isn’t anymore. With advancing science and technology and an increasing consumer awareness about the type of food we eat and our overall health, people are simply living longer today. Good thing for you, but could be bad financially if you haven’t planned for those extra years. More of us are living to the age of 65 at least. And, according to the Society of Actuaries, males who make it past that age have a 17 per cent chance of living until they are 95. Females have a 23 per cent chance of reaching that number after their 65th birthday.

Truthfully, no one can tell you the honest truth about your retirement – even if they’re fully aware of your financial situation. And certainly no one can give you a magic number concerning how much you’ll need saved in order to retire. Only you know the life you want to live in your Golden Years and so, only you can know what your retirement truths will be.

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