Since about 10,000 baby boomers are celebrating their 65th birthday each day, the topic of retirement is thought about more frequently within this generation. Some baby boomers are discovering that even though they have worked toward retiring for decades, they are not as prepared as they need to be.
There are some frequent misunderstandings that baby boomers, Gen Xers, and Millennials hold when they discuss and think about retirement investing. Some of these wrong impressions about investing for retirement can be costly and cause retiring to be postponed.
1. Believing that all savings need to be put in a 401(k) or IRA
While having a 401(k) and IRA is a great place to put some money, having additional money that is easier to access is essential. With the uncertainty of life events, needs and emergencies, there are other options where you can invest in accounts that do not penalize you for an early withdraw. This also helps you have access to funds if you happen to retire younger.
2. Retirement = It Is Finished
Many retirees in previous generations have treated retirement as it if meant completion of life. It is the beginning of another chapter and today’s retirees are living healthy and active lives after retiring. Some retirees continue earning income from their endeavors or jobs and also continue to invest or take little from their retirement accounts for several years. Plans need to be made for a lengthy retirement which means having a retirement plan where every aspect of your finances is evaluated, covered and planned. Today’s retirees are still embracing life. It is not finished, and it’s a chapter where retirees get the opportunity to share knowledge, enjoy time freedom, do things they dreamed of doing but were too busy and have the funds to support their lifestyle.
3. How Much To Invest
Most of us do not consider that the amount we put away for retirement needs to stay aligned with our income. It doesn’t matter if you are a baby boomer, Gen Xer or Millennial, the retirement amount needs to increase as the income increases to help meet the lifestyle expectations of retirement. This will help with your taxes today and your lifestyle after retirement.
A lot of people save up to 15% of their income and feel like they have a good retirement savings plan in place. If you didn’t start saving when you were very young, this might not be the case. Many people who started saving when they were older need to increase the amount they are saving dramatically. Another tip, especially for those trying to play catch up, is to learn about compounding interest and what it can do to improve your retirement picture.
4. It’s Time To Invest In Bonds
Most of us have grown up hearing it’s time to invest in bonds as you get older because of the security they have offered. Bonds have a reputation of being safe. However, with the current low-interest rates, this could impact the bonds worth if interest rates happen to increase significantly.
5. Waiting To Invest
So many people have made the mistake of waiting to invest. They wait for many reasons believing they do not have enough money or income to invest for retirement yet. There are always many reasons to put off investing but even minuscule amounts over time will make a difference in your retirement savings. Retirement savings needs to be in your budget and increased periodically as you can.
6. The Cost Of Financial Advisors
Many people believe all financial advisors are going to act in their clients’ best interest. Only fiduciaries are required by law to act in their clients’ best interest. There are often hidden fees in your investments which can add up and impact the savings for retirement. One question will help you determine if the financial advisor is someone you should be using or not – “Are you a fiduciary?” If their response is NOT YES, walk away as quickly as you can and find someone who is required by law to act in your best interest.
7. Not Thinking About Your Distribution Plan
Consider your distribution planning which is often an oversight as we make retirement plans. We spend a lot of time saving money for retirement which is excellent. However, we need to look at the timing and amount to be sure you are provided with a consistent income during your retirement.