There are many ways to implement a successful retirement strategy. One of them is to carefully map out a sensible financial plan and then stick to it through thick and thin; another is just to wing it, using your intuition and gut feelings and hope for the best.

Although these two courses of action seem like a ridiculous comparison on paper, far too many people choose the latter option when planning for retirement. A large segment of the working population believes that their hunches will get them where they need to go without a solid foundation. This article will address several major misconceptions that people commonly harbor when it comes to retirement planning.

Intuition No.1

You should be able to better predict a stock price tomorrow compared to predicting where it will be 10 years from now, and there is a much lower chance of a big drop in a single day than there is over time in a given stock or fund.

The Reality
Numerous studies conducted by economists, market researchers and investment companies have repeatedly shown that it is often less risky to hold stocks for longer periods. It is extremely rare to find a 10-year period in which the market delivered a negative return. Stocks and real estate are the two big asset classes that have outpaced inflation over time, and despite some bearish periods, they have slowly risen in value and will likely continue to do so.

Intuition No.2
If I don't sell my losing position, then I don't have a loss.

The Reality
This is sheer nonsense. You are losing money in a declining stock, regardless of whether you actually sell it or not. You won't be able to claim a loss, but the difference between realized and recognized losses is only for tax purposes. Your actual loss is the same regardless of what is or is not recognized on the tax return.

Intuition No.3
Let the managers and professionals handle it

The Reality
Although professional portfolio management is a wise choice in many instances, it is still necessary to be personally involved in the management of your finances. It's OK to delegate market trading to a pro, but don't leave your finances entirely in the hands of your broker or banker. Many people will take more time to find a deal on eBay than manage their retirement. Yes it's more important to make sure that your assets are allocated correctly than to find a used copy of "The Godfather Trilogy".

Intuition No.4

Don't sell an investment and then buy it back again; instead, just hold it.

The Reality
As mentioned previously, you can sell a depressed holding and declare a capital loss before the end of the year to get a tax deduction. Just be sure not to buy an identical stock 30 days before and 30 days after the date of the sale. Buying back in during this period will trigger the IRS's wash sale rules and will cause your capital loss claim to be void. If you have already made this error and filed your return, then you must file an amended return immediately.

Intuition No.5
Retirement is a long way away, and I therefore won't have to worry about it for a long time yet.

The Reality
This is perhaps the most dangerous myth of all. You will be poor and dependent upon relatives if you don't get this under control, NOW. It will take time for your investments to grow to what they will need to be to sustain you through your non-working years. If you don't start saving now, then you won't have that time.

Intuition No.6
I should put all of my retirement money in totally secure investments, especially after I retire.

The Reality
Not necessarily. You might be able to get away with this, but most retirees should have at least a small portion of their savings allocated to equities in some form, either through individual stocks or mutual funds. You need to sit down with your financial planner and run a realistic cash-flow projection that can predict with reasonable accuracy whether a portfolio with no market risk can sustain you through your retirement years.

Intuition No.7
Social Security will sustain me through my retirement years.

The Reality
Dream on. Social Security pays bare-subsistence income at best, and will certainly not provide you any kind of comfortable life. It might cover rent or a mortgage payment plus utilities, but the rest will probably be up to you. Don't count on Uncle Sam to meet all your retirement needs. The future of Social Security is in doubt as it is.

The Bottom Line
This article has addressed seven of the most common retirement planning myths. How many of them do you believe? Consult your financial advisor for a comprehensive retirement checkup or human resources department for a review of your company retirement plan.

Related Articles
  1. Retirement

    Suddenly Pushed into Retirement, How to Handle the Transition

    Adjusting to retirement can be challenging, but when it happens unexpectedly it can be downright difficult. Thankfully there are ways to successfully transition.
  2. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  3. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  4. Retirement

    5 Secrets You Didn’t Know About Traditional IRAs

    A traditional IRA gives you complete control over your contributions, and offers a nice complement to an employer-provided savings plan.
  5. Retirement

    Is Working Longer A Viable Retirement Plan?

    Fully funding someone’s life for three decades without work is tricky. The result is retirement has become, for many, a 30-year adventure.
  6. Retirement

    Don’t Retire Early, Change Careers Instead

    Though dreamed of by many, for most, early retirement is not a viable option. Instead, consider a midlife career change.
  7. Retirement

    Using Your IRA to Invest in Property

    Explain how to use an IRA account to buy investment property.
  8. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  9. Retirement

    Top 3 Cities To Retire To In Cambodia

    Take your pick of a party-party beach town, an architectural wonder in the jungle, or a less touristy town with vestiges of French colonial style.
  10. Personal Finance

    How the Social Security Reboot May Affect You

    While there’s still potential for some “tweaking” around your Social Security retirement benefits, I’d like to share some insight on what we know now.
  1. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  2. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  3. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  4. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  5. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  6. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>

You May Also Like

Trading Center