We would all like to know where the potholes are during our morning commutte and do what we can to avoid them. The same can be said for investing. This blog will take a look at 5 investment myths and their solutions

Myth #1

Social Security will never drastically change. Most feel that Social Security is in trouble, I tend to agree with that idea. The most dramatic way to put it is that in the past their where 40 workers paying into the system for every 9 retirees. Today, there are 3 workers paying in for every 1 retiree. Basic math and logic would bode that the system cannot support this ratio.

When S.S. was incepted retirement age was 65. Today we are still holding on to the retirement age of 65, but our life expectancy has risen. This means that when we retire we need a lot more in our investments to make it through. We can no longer count on S.S. to solely fund our retirements.

Solution:

When planning to retire, take advantage of qualified and non-qualified retirement plans in the likely event that Social Security in not enough.

Myth #2

When retired, you should put all your money in the bank, where it is safe. While having some of your money in the bank makes sense, it doesn’t protect you from risk to principal. It also doesn’t protect you from interest risk.

CD rates fluctuate just like any other investment vehicle. Everyone knows that rates go up and down. I would be willing to wager a CD was earning more 10 years ago than it is today, who knows what it will be 10 years down the road.

While CDs don’t have sharp up and down movement, there is quite a bit of real volatility in CDs. Should you avoid them altogether, probably not. But a CD type Annuity will provide you the same security and offer a higher return based on the fact that the money you would otherwise pay in annual taxes in a CD remains in an Annuity compounding interest.

Solution:

When doing your retirement planning, diversify among a plethora of products. Products that can protect you from risk to principal, risk to interest rate movements and risk to your purchasing power.

Myth #3

You will, most likely, be in a lower tax bracket during retirement. This is correct if tax brackets remain the same and you don’t return to work. Realistically tax brackets do change and have so drastically.

Solution:

When planning, assume that your current tax bracket may not change.

Myth #4

It is proper to assume low inflation rates while planning for retirement. We all know that things will cost more in the future. If you have a copy of a utility bill from a few years ago, compare it to a current statement.

Solution:

Simply plan for an annual inflation rate of 3-5%.

Myth #5

Waiting for a windfall will cost you-big time. I recently read a survey where a cross section of the general public was asked how they will fund their retirement. The most popular answer: Winning the lottery…

If we fear acting now, if we put of planning for retirement and proper financial planning it will cost us in the long run. We need to act in spite of recent events.  Its either wait or act.

Solution:

When planning, don’t wait for a windfall to be bestowed upon you. Also, don’t fear current market conditions waiting for things to “improve”. Be bold and move forward, it is your retirement after all.