We Just Debunked These 10 Retirement Myths

While saving for retirement should be a priority among all consumers, regardless of their age, too many Millennials and even Gen X-ers mistakenly believe they can easily catch up when they are ready.

Waiting until your sizable credit card debt or student loans are paid off entirely could lead you to work for several more years since it will take them longer to reach your goal. Even saving a nominal amount each month in an IRA or 401(k) will add up quickly because of the magic of compounding interest and the tax savings.

But one sure-fire way to stifle your retirement plans is to drink the Kool-Aid of retirement planning falsehoods that exist out there. The only solution is to arm yourself with awareness about these traps and misdirected opinions and learn how to steer clear of them. Here are ten common retirement myths and why following them is not an effective strategy to building up an adequate portfolio once you stop working.

With real estate prices and health care rising, and with interest rates on an upward spike as the U.S. economy gathers significant strength in 2017, retirees - and near-retirees - may wonder just how far their household dollar may stretch in retirement, especially here in the U.S.

One antidote is to do what 400,000 retirement-minded Americans are doing and find a comfortable, affordable landing spot overseas.

After all, Florida and Arizona aren't the only places on earth with plenty of warm sunshine, palm trees, good food and friendly people - they just happen to be among the most expensive retirement destinations.

Change that dynamic, passport in hand, by opting for one of the global locales to add some international luster to your golden years - straight from the mouths of ex-pats who live there.

Editors' pick: Originally published June 7.

1. You should move most of your investments into conservative bonds and CDs as you approach retirement

Since the 2008 market crisis, too many retirees have become overly conservative with their investment allocations as they start to draw on their investment portfolio, said David Walters, a certified financial planner and client service and portfolio manager with Palisades Hudson Financial Group in Portland, Ore.

Although stocks experience volatility, they generally only last a short period and they have historically outperformed bonds and other conservative investments over long periods.

"Retirees need to understand that the period of their retirement can be upwards of 30 years and they need their portfolio to support them throughout this entire period," he said. "While it is important to keep the risk of the portfolio in check, some allocation to stocks is warranted. Sometimes being too conservative is just as big of a risk to a comfortable retirement as being too aggressive."

2. Paying for your child's education should be priority number one

Many people approaching retirement are often faced with another big expense in their 40s and 50s, especially if they did not save enough for college tuition for their children. Too many parents prioritize paying for a child's education at the detriment of saving for their own retirement, said Walters.

Instead of focusing solely on financing their tuition, parents need to find a good balance by utilizing student loans and other funding sources.

"You can't finance your retirement, so a balance is needed," he said. "This is even more important for parents with children at or close to college age as their time horizon for retirement is much shorter and these years are often the peak savings years where they should be socking away more money for retirement."

3. Waiting to save for retirement is not a problem, because you can catch up on savings

Saving money in your 20s and 30s creates a good habit, and since the majority of Millennials will lack a traditional pension to boost their retirement funds, they need to begin sooner rather than later, said Jon Ulin, a managing principal of Ulin & Co. Wealth Management in Boca Raton, Fla.

"One of the biggest financial advantages you have is time," he said. "By saving $6,500 each year that earns 6% will generate your first million in 40 years." 

Other employees also fail to contribute to a 401(k) plan, because they can not access the money without paying penalties and fees.

"Of course, it's good that you can't spend it," said Mitchell Langbert, an associate professor at Koppelman School of Business at Brooklyn College in N.Y. "That's why it's a retirement fund."

4. You can spend 4% of your retirement funds annually and not run out of money.

The so-called 4% rule simply is not likely to be enough since advances in medical care are helping people live longer. The returns in the stock and bond markets may be unusually low compared to previous rates and many retirees may need to spend less money so they do not run out, said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa.

"In today's world, 3% is a much safer assumption," he said.

5. Medicare is sufficient

While Medicare is a wonderful program for older Americans, it only pays for some health-related expenses.

Most retirees should consider buying a Medicare supplement policy or allocating more of their budget for prescriptions and other healthcare costs as they age, said Johnson.

6. Social Security is going bankrupt, so you should start claiming it as soon as you can

The Social Security program is "actually in much better shape than most people realize," said Johnson. When people delay their claims, their annual benefits increase and at a very large rate.

"For those people who live a long time, the decision to delay Social Security can produce real inflation-adjusted returns of 4%, 5%, or even 6% for those who live into their 90s and beyond," he said.

7. Your living expenses will decline as you get older

Many people believe their expenses will decline dramatically once they retire. The opposite is likely true for many retirees, said Krista Schwartz, an advisor at Hefty Wealth Partners in Auburn, Ind.

"In my experience, they often end up spending more," she said. "Even though what many deem the 'big' expenses are out of the way, i.e. college, costs associated with the kids' hobbies and sports, weddings and cars, many items will just replace those expense with others."

Some retirees opt to take longer and more elaborate vacations visit adult children in other states, conduct home improvements, buy second homes or rent houses or condos in a warmer climate.

"They all add up," said Schwartz. "It is important to assume you will spend just as much as you always have."

8. There is a "magic number" or amount of money you need to save for retirement

Many people believe that there is a "magic number" they should save, depending on how much they earn and their age, said Schwartz. Your goals and lifestyle will play a large factor in determining this figure.

"This myth has mainly come from various budgeting books, tools and programs that are out there," she said. "While it is a good place to start, even two people who are the exact same age and make the exact same amount could need vastly different amounts saved in their retirement accounts."

9. Social Security will replace your income

The majority of Americans have saved very little money for retirement and too many think they can live on income solely from Social Security.

"For many, this couldn't be farther from the truth," said Schwartz. "Depending on their lifestyle, social security won't even replace half of their income. It is critical to save for retirement, knowing social security alone won't give you the lifestyle you desire."

10. You enjoy working and will retire when you want/can

Deciding when you want to retire is no longer reliable because individuals could be laid off or face unexpected health issues. Saving less money and believing that they can work full-time until they quit or opting to get a part-time job in retirement is not always as easy as it seems.

"Retirees are competing for a part-time job with a whole generation of Millennials working through college and Gen Z looking for jobs," said Schwartz. "At the end of the day, they might not have a choice about when they go into retirement and it is crucial they are ready."

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