9 Stupid Retirement Advice Most People Believe

Retirement planning today is very different from what it was thirty years ago. Pensions are a thing of the past, the lifespan of Social Security is questionable, and the stock market seems to be turning into one bubble after another. Unfortunately, the clichés of retirement advice haven’t changed much, and many of them are very outdated.

According to financial experts, here is one of the worst pieces of advice most people still believe, but one you should definitely avoid.

Bad advice #1: $1 million in the bank equals retirement success

Rules of thumb are attractive because they make the complex easy to understand. The belief that a certain amount of dollars is the main factor in determining your success in retirement can be misleading.

A few years ago, there was a popular commercial in which a client walked around with a large $1 million theatrical prop under his arm. He carried this large number around the city like a trophy and required both hands to hold it.

But it turns out that a certain dollar amount is misleading if you don’t factor in your projected retirement expenses and what your associated cash flow might be.

Rules of thumb, such as the 4% rule, are meaningless unless they are linked to an individual strategy that takes into account your personal cash flow needs and any investment allocation model designed around your unique goals.

Douglas Boring

Bad advice #2: Annuities and life insurance will protect your income

You should avoid falling into the tactics of expensive insurance and annuity sales that are too good to be true. Variable annuity sales increase when the stock market falls. Creating and following your financial and investment plan will help you avoid these costly mistakes.

Cecil Staton, CFP, CSLP

Bad Tip #3: You Can’t Afford a House Because of Your Starbucks Habit

The dumbest piece of advice these days is that your morning Starbucks and Netflix subscription is what’s stopping you from buying a house. When house price inflation is in double digits relative to the median salary, the best thing you can do is save up enough money to stand still.

Stopping these spending will not move the needle in saving for the home, but will make a difference in saving for retirement. Unfortunately, I started investing in my career too late and now I’m paying the price, so start early and you’ll have more choices later in life.

Tim Thomas

Bad advice #4: Always withdraw from taxable accounts first

One of the main mistakes is spending from the wrong accounts! Common sense tells consumers that the order of withdrawals should be taxable accounts first, then tax-deferred (401kc, IRA), and lastly tax-free (Roth 401kc, or Roth IRA). The problem is that this often leads to a tax trap when mandatory minimum payments (RMD) start at age 72.

Often RMDs bring in MUCH more income than they need due to diligent savings and investments during the accumulation phase. This could lead to higher tax rates and potentially higher health insurance premiums.

The best solution is to set up your income plan! Take advantage of early retirement before RMD starts either spending some of those tax deferred bills or maybe doing Roth conversions!

Kevin Lao

Bad advice #5: You should only invest in income-producing assets

One bad piece of advice I hear over and over again about retirement is that you need to have an income-producing portfolio. This is a very misguided and inefficient way to build a portfolio. What people should be discussing is “total return” as applied to a portfolio.

Total income focuses on all elements of the portfolio, not just income and principal. The total return on an investment or portfolio includes both return and valuation. Income-focused portfolios can actually reduce diversification due to the fact that they are primarily focused on assets that generate dividends or income.

Many advisors like to talk about income-producing portfolios because they either don’t know better or because psychologically their clients like the way it sounds (it allows the client to “protect the principal”).

Most likely, if you want your money to stay afloat, it will need to be multiplied; not only produce dividends and income.

Bradley Hilton

Bad advice #6: Retiring abroad will save you money.

Many retirees find that moving abroad to a country with a lower cost of living is a surefire way to save money. This assumption couldn’t be further from the truth! Many retirees spend more money to feel comfortable in a foreign country than they would by staying at home.

Costs can rise quickly and adapting to a new environment is difficult, especially with a new language, currency, and customs. Retiring abroad may be a great option for some, but it’s not an easy decision.

Carly Rojas Avila

Bad advice #7: Try to predict future tax rates

One mistake I often see is failing to diversify your retirement savings in terms of taxation. Investors typically only contribute to a traditional workplace pension plan or traditional IRA. They are not considering opening a taxable or Roth account.

Investors are aware of the importance of investment diversification; they distribute their investments across asset classes, sectors and countries. They are well aware that investing all their assets in one industry or one business can be risky. By failing to diversify the tax style of their investments, investors predict what taxes will be like in the future.

Will you earn more or less in the future, will taxes go up or down, will minimum payout requirements change and will Roth options be available in the future? Who knows? That’s why I think it makes sense for investors to think about diversifying the type of taxation they have on their retirement savings.

Jay V. Richel, CFP

Bad Tip #8: Retirement Strategies Are Universal

Thinking about strategies in absolutes is really bad advice. I see a lot of consumers who read about a retirement strategy (like the 4% rule, annuities, index funds, etc.) and then think the strategy is either right for 100% of people or wrong for 100% of people.

You won’t get a second chance in retirement, so it’s VERY important to stay strategy independent when it comes to retirement and use a strategy specific to each retiree. Instead of having an optimal mathematical strategy, it is important to have an optimal strategy for that particular client (one that they can stick to), combining the art and science of finance.

Doug Osterhart

Bad Tip #9: Just Contribute to Your 401(k) and Don’t Think About It

The “set it and forget it” approach to retirement planning is becoming less and less popular, and often it may not be enough. Because many young professionals see more value in flexibility and freedom than buying real estate and new cars, planning for retirement now requires more creativity than simply making 401(k) contributions or assuming that your pension will be for you no matter what. what.

Putting a stake in the sand where you think you might want to be in the future and analyzing the paths leading to it is wise advice, even if life forces you to correct course along the way.

Michael Raimondi

Bad Retirement Advice (which most people still believe)

There is a lot of bad retirement advice out there. Some of the advice is just outdated, while others are more sinister – pushing expensive products that 99% of people don’t want that make big money for financial companies.

Knowing how to separate the good advice from the bad will get you one step closer to a successful retirement.