What’s your retirement IQ?
Unfortunately many people live their lives unaware of the financial and other demands of retirement and find themselves with a much lower standard of living than they anticipated. You can boost your retirement IQ by being aware of some of the most common retirement traps.
Myth: I’m young, I can figure this out later.
Reality; The sooner you begin to save for your retirement the better. Because of the power of compounding to grow a wisely invested portfolio, smaller amounts of money invested now will yield much bigger nest-eggs than larger amounts invested closer to retirement age.
Myth: My public and company pensions will take care of me.
Reality: One of the most common errors in retirement planning is to overestimate the payouts from public and corporate pension plans. While every situation is unique, on average we find that payouts from national insurance plans are not adequate to maintain standards of living and that company pensions can be reduced if you change jobs or careers, by a lack of vesting or portability.
Myth: I can use my retirement nest egg for major purchases, as long as I replace the funds eventually.
Reality: This is called Raiding and it is not a good idea. Not only does it reduce the size and growing power of your nest-egg, there is a good chance that those funds will not be so easy to replace. A good retirement plan will help you balance what you save and what you use now to enjoy life.
Myth: A dollar now is a dollar later.
Reality: Even very low inflation dramatically erodes the purchasing power of your savings. Your plan has got to take this change in purchasing power into account-or you may get caught short.
Myth: I will only need 60 percent of what I make now when I retire.
Reality: Your retirement is when you want to live life – go travel, pursue a hobby – in fact, you might actually spend more money than you do now. Even if you don’t spend more money, it is still a challenge to adjust to only 60 percent of the income you are used to.