Author: Emily Guy Birken / Source: Wise Bread
Retiring is an amorphous and complicated goal — which means retirement planning attracts more than its fair share of plausible-sounding myths. Unfortunately, these myths, misconceptions, mistakes, and misbegotten rules of thumb can seriously lead you astray on your path to a well-funded and fulfilling retirement.
Don’t fall for any of the following common myths about money in retirement.
1. You need $1 million to retire comfortably
This particular myth holds a unique distinction in that it is wrong in both directions: $1 million is both not nearly enough money for the retirement you’re dreaming of, and way too high a number for most people to achieve.
How is that possible?
On one hand, $1 million doesn’t go nearly as far as it once did. If you plan for a grand retirement that involves traveling, fine dining, entertainment, and general living-it-up, you will probably find that a $1 million nest egg will not cover all you want to do. In fact, depending on your cost of living and other circumstances, it’s entirely possible you could exhaust $1 million with relatively modest retirement spending.
On the other hand, $1 million is a number that is out of reach for the majority of workers. According to a 2016 GoBankingRates survey, 33 percent of Americans have nothing saved for retirement at all. For most Americans, the idea of saving $1 million for retirement may sound too overwhelming to even think about, and they may give up on the idea of saving altogether.
The problem with this myth is that it is slapping a blanket generalization over a very idiosyncratic process — preparing for retirement. Instead of focusing on a nice, round number, calculate your best estimate of how much your own dream retirement will cost. Make adjustments to your dream or the number as necessary. (See also: How to Retire With Less Than $1 Million in Savings)
2. The 4 percent rule
This myth actually has a specific start date. Financial adviser William Bengen proposed this rule in 1994 as a potentially safe withdrawal rate for retirees to make sure their money would comfortably last for the rest of their lives. He based his proposal on historical market data and predictions over where the markets would go in the next 20 years.
Here’s how the rule works: Historically, the rate of return on stocks generally hovers around 10 percent. That means a retiree can take 4 percent of their assets each year to live on, without ever touching the principal and still seeing growth each year. For a retiree with a $1 million nest egg, that…
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