Planning for retirement today is a lot different than it was thirty years ago. Pensions are a thing of the past, the longevity of social security is iffy, and the stock market seems to be one bubble after the next.
Unfortunately, the clichés of retirement advice haven't changed much, and many are badly outdated.
According to money experts, here are some of the worst advice most people still believe, but you should definitely avoid.
1: $1 Million in the Bank Equals Retirement Success
Rules of thumb are attractive because they make the complex simple to understand. Believing that a certain dollar amount is the main factor that determines your retirement success may be misleading.
Rules of thumb like the 4% rule are meaningless unless they are related to an individual strategy which takes into account your personal cash flow needs and some type of investment allocation model which is designed with your unique goals in mind.
2: Annuities and Whole Life Insurance Will Protect Your Income
You must avoid falling for expensive insurance and annuity sales tactics that are too good to be true. Variable annuity sales increase when the stock market has declined. Creating & sticking to your financial and investment plan will help you avoid costly mistakes like this.
When house price inflation is in double figures, on the average salary, the best you can do is to save enough to stand still.
Stopping these costs won't move the needle in saving for a house but will make a difference in saving for retirement.
4: Always Withdraw From Taxable Accounts First
One primary mistake is spending from the wrong accounts! Conventional wisdom has led consumers to believe the order of withdrawals should be: taxable accounts first, tax deferred next (401ks, IRAs) and tax free last (Roth 401ks or Roth IRAs).
The problem is this often leads to a tax trap when required minimum distributions (RMDs) begin at age 72. Oftentimes, the RMDs are MORE income than is needed because of diligent saving and investing during the accumulation phase. This could result in higher tax rates and potentially higher medicare premiums.