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The 11 Biggest Retirement Lies We Tell Ourselves

December 24, 2012

By Laura Shin, LearnVest | Money Rates Columnist

5. I deserve to have fun with my money today–I work hard for it

Saving for retirement is not an either/or proposition. You can save for retirement and enjoy life now. Here’s how: the 50/20/30 Rule. This budgeting guideline says that:

  • No more than 50 percent of your take-home pay should go toward your Essential Expenses, which include housing, transportation, groceries and utilities.
  • At least 20 percent of your take-home pay should go to Financial Priorities, which include retirement contributions, savings contributions and debt payments. (Plus, if your employer offers a retirement plan, such as a 401(k) or a 403(b), you should be be contributing additional money toward retirement before your paycheck hits your bank account.)
  • Lastly, no more than 30 percent of your take-home pay should go toward your Lifestyle Choices, which covers the fun you can have today: shopping, entertainment, personal care, the gym, gifts and more.

So, yes, you do deserve to have fun with your money today–just not at the expense of tomorrow. (Learn more about the 50/20/30 Rule.)

6. A big inheritance is coming my way someday

This is a case of counting chickens before they hatch. The inheritance you feel sure to collect could be devoured by medical bills, it could dwindle away in another financial crisis, or you could find the wealthy relative you expected to inherit from is living far longer than you expected. You may also end up needing that money to pay off debts or taxes. While it certainly would be nice if you inherit money and you could put all of it toward your retirement, thinking you can do so is not a plan; it’s a gamble.

It’s better to rely on yourself to fund your retirement and then to enjoy your inheritance as a bonus if you do indeed receive one.

7. I’ll be able to use the equity in my home to retire on

This retirement lie raises two big questions: Where will you live in retirement? And what if the market is down when you want to sell?

Okay, we’ve got a third question: Remember the housing crisis a few years ago?

8. I need to get my kids through college first and then I can focus on my retirement

Yes, college is a big expense, and you should definitely save for it. But if you don’t save the full amount for college, you can always fall back on financial aid. Grants, scholarships and student loans can help pay your child’s way. (Learn here how best to save for your child’s college education and learn to open a college savings account with this checklist.)

When it comes to your retirement, however, there are no loans. All you’ll have to live on is what you’ve saved. For that reason, saving for retirement should be your top financial priority–always. Any leftover money you have can go toward college savings. (Find out here how to prioritize retirement against your other financial goals.)

9. I am going to lose money so why invest it in a 401(k) or IRA?

Yes, the market is not reliable from year to year. But, historically, over long periods of time, it has returned about a 7 percent annual return on investments. You’re not going to get that with a savings account–and, in fact, you won’t even beat inflation if you stash your money in a savings account.

10. I’ll start saving when the market improves

No one can predict the market. No one. So you cannot time your investments perfectly so that they only ever go up. But if you invest regularly over decades, your investments, like the general stock market has done historically, should experience more ups than downs. So, invest for the long haul, and don’t fret over minor dips now. If you do, you’ll be missing out on amassing tens of thousands of dollars later.

11. I plan to keep working even during retirement

According to the Chase/LearnVest study, 17 percent of women believe they can do this (as do 14 percent of men). You may love your work, and it may be the kind of work you can do even when you’re less spry. But what if you can’t find work, or what if you have health problems that prevent you from working?

While you can hope for a best-case scenario, it isn’t wise to base your plan around one. Sock away some money now so you’re ready for whatever may come your way. Even if you’re healthy enough to work past the typical retirement age, you’ll probably want a vacation now and then!

No More Excuses

If you’re fully convinced to let go of all these retirement lies, take our Retiring in Style Bootcamp. In 10 days, you’ll visualize your future retirement, learn what accounts you need, find out the total amount you need to save and more.

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Checklist: I Want to Save for Retirement

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