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6 Dangerous Retirement Myths

6 Dangerous Retirement Myths

Ideally, retirement is an idyllic time during which you can relax and do all the things that you’ve always wanted to do. But getting to the point where you can pay for the retirement you want isn’t easy; it requires hard work and sacrifice during your working years. And if you fall for any of these common retirement myths, then all that effort you put into saving over the years may be for naught.

1. 65 is the right age for retirement

Once upon a time, 65 was considered “full retirement age.” This was the age when many people both retired and filed for Social Security benefits, because they were now entitled to receive the full benefit amount for which they were eligible. However, as the average lifespan has climbed, the Social Security Administration has pushed the full retirement age forward a bit. If you were born between 1943 and 1954, your full retirement age is 66. For those born in the following years, retirement age creeps up by two months per year, meaning that someone born in 1955 would have a full retirement age of 66 years, two months. Everyone born after 1959 has a full retirement age of 67. If you claim Social Security at age 65 under the mistaken belief that that’s the best time to file, your benefits will be permanently reduced because you claimed them before your actual full retirement age. And without the help of Social Security benefits, most people wouldn’t be able to afford retirement at age 65 without putting a dangerous strain on their retirement savings.

Older man looking frustrated
Image source: Getty images.

2. Stocks are too risky for retirement investments

Stocks are definitely a riskier investment than, say, government bonds or bank savings accounts. However, stock investors are rewarded for taking on risk by getting a comparatively high average return over the long haul. Without the help of that high average return, you’d need to save much, much more money during your working life to get enough retirement savings built up. For example, let’s say you’ve saved $1,000 per month (which adds up to $12,000 per year) and put it in government bonds, getting an average annual return of 2%. At the end of 30 years, you’d have $496,553 saved up — which is nowhere near the amount the average retiree needs. On the other hand, if you’d put that same $1,000 per month in stocks and gotten an average annual return of 7%, you’d have $1,212,876 saved up after 30 years. That’s enough to finance a very comfortable retirement indeed. The most significant risk factor with stock investments is their volatility: while they show terrific returns over the long term, in any given year they can climb or fall dramatically in value. Thus, as you approach retirement, it’s wise to shift most of your retirement funds over to bonds instead. That way you can have your cake and eat it too: enjoy the high returns of stocks,…

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