Myth No. 3: Downsizing in retirement will save you money
Caroline Delaney, executive vice president at San Jose, Calif.'s Hillis Financial Services

Many clients want to downsize, but their egos tend to get in the way. They think moving into a smaller home will cut back on their monthly outlay, but that tends not to be the case. They may move into a smaller home, yet the money they save in mortgage payments ends up going to remodeling the home or a new car payment. When giving up the space, make sure you are actually reaping the benefits.

When downsizing, many retirees also consider relocating to states that have lower taxes. This should not be the main consideration when looking to downsize and relocate. State taxation rates are always subject to change, especially in light of the financial difficulties many face.

Myth No. 4: You should pay off your home mortgage early
Expert: CPA, financial planner for Mackey McNeil and president of Bellevue, Ky.'s Mackey Advisors

It really depends.

If one makes additional principal payments to pay off the mortgage early, that is different from someone who takes $100,000 out of their portfolio and pays off the mortgage in one big chunk. It's best to run the numbers for yourself and see what is best for you. Too often, taking a lump sum at retirement to reduce debt creates a very bad result. At a 40% tax rate, you have to take about $160,000 out of your portfolio to retire $100,000 in debt. This means that entire $160,000 is not earning money for you for the rest of your life.

In addition, today's mortgage interest rates are at an all-time historical low. Given that mortgage interest continues to be tax deductible (assuming one itemizes), the equivalent interest rate is lower still. One could refinance an existing mortgage (even consider a cash-out refinance) and either invest the rest in a balanced portfolio that would allow for current income and growth of capital at a rate greater than the mortgage interest rate and/or pay off high interest credit card debt.

Myth No. 5: Medicaid covers all of your health care expense
Expert: John Bucsek, managing director of MetLife Solutions Group ( MET) in Cranford, N.J.

Medicaid covers only catastrophic illness, not all of your health costs -- that's why they have Medigap and other supplemental coverages for an additional cost.

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