Did you know, approximately 10,000 baby boomers turn 65 every day? From early adulthood and beyond, we’re taught that retirement planning is essential to our financial future. While not wrong, this idea can put a strain on young adults and baby boomers alike.
The truth is, retirement planning isn’t as cut and dried as an employer-sponsored 401(k). There are many complexities and risks associated with retirement planning, which can often cause misconceptions related to planning, preparation, and timing. Here are some of the most common misconceptions about planning for retirement.
1. Investment Accounts are the Best Retirement Vehicles
Retirement planning is almost synonymous with investment accounts like a 401(k) or Roth IRA. From a very young age, we’re conditioned to believe these are the best vehicles for retirement. While retirement investment accounts are the most widely utilized ways to plan for retirement, there are other products that can be used to grow your nest egg. An underutilized way is to combine your investment accounts with actuarial backed financial products like whole life insurance. This adds flexibility to your retirement portfolio, can be used to finance large purchases, and gives you quick access to cash in an emergency.
2. You Should Only Invest When You Have Enough
Many young adults know they need to put money aside for retirement, yet many don’t. This is often because they don’t feel they have the funds to do so. Between low starting wages and mounting student loan debt, it’s an easy conclusion to come to. However, even the smallest investments will be beneficial in the long run. Create a monthly budget to see where you can divert funds from and don’t forget to take advantage of your employer’s 401(k) match.
It’s important to note that as your income grows, so should your retirement investments. A good rule of thumb is to put aside 20% of your paycheck for retirement. Saving more money now ensures you don’t run out of money during retirement.
3. Tax-Deferred Accounts are the Best Option
Most retirement investment accounts let you put away untaxed money. These accounts operate on the assumption that you’ll be in a lower tax bracket when you retire, and the tax rate will be lower than it is today. The problem? Neither of these is guaranteed.
By relying only on tax-deferred retirement accounts, you may be setting yourself up for financial hardship during retirement. Not only could you pay more in taxes when withdrawing your funds, but that amount may also impact your social security income.
4. Retirement Is the Finish Line
It’s easy to get caught up in the mindset that retirement is the final stop on the financial train. After all, it’s your chance to finally retire from a long career. Rather than focusing on retiring from, your focus should be on what you’re retiring to. Sure, retirement is meant to be relaxing but it’s also an opportunity to do the things you haven’t yet had the chance to. Start a new hobby, go traveling, or take classes at a local college; the options are endless! With that in mind, it’s important to know what your goals are for retirement and work them into your retirement strategy.
5. You Have Very Little Control Over Your Retirement Fund
Aside from selecting how much money to set aside for retirement, you may feel like you have very little control when planning for retirement. This couldn’t be further from the truth! When planning for retirement, or growing wealth in general, you need to take an active role. Partnering with a wealth strategist is a great way to take control of your financial future. In addition to being skilled in a diverse range of financial products, a wealth strategist can help you create a financial strategy tailored to your lifestyle and goals.
Sage Wealth Strategy has the expertise to help you build a flexible retirement plan.