Empower Blog

July 08, 2022

4 Misconceptions That Can Hurt Your Retirement

Financial Planning
While you may be saving each month for the retirement you desire, there are plenty of sand traps along the way that could significantly and negatively alter your retirement goals.

These are four misconceptions you may be giving into now that can hurt your retirement later.

1. Thinking the Market Will Always Remain Positive

Hopefully, you have been one of the many people that have taken advantage of the enormous returns the market has provided over the past few years. While this climate may be working to your benefit now, this landscape can easily skew people's perception of the average returns they can expect over the lifetime of their investments.

When the market takes a downturn, it may be challenging to stay focused on the long game. People become emotional and make rash decisions, wanting to pull their money out. It's vital to have a steady and educated sounding board during these times that can help you chart your course and stick to your investment goals.

One of the best ways to reduce volatility is to diversify your portfolio. You can reduce your overall risk by choosing a variety of investments instead of perhaps only your 401K. Dividing your investments among stocks, bonds, and cash that react differently to the market will help reduce the volatility of your portfolio.

2. Not Factoring in Inflation and Rising Medical Costs

If there is one thing we can count on, the cost of everything is continually going up. Everything from living expenses to medical costs, you should plan for increased pricing as time goes on. What $50,000 is worth today is not the same as what it will be worth 10-20 years from now. We know medical expenses rise around 4% on average per year, and so does inflation.

To appropriately plan for increased expenses, the growth of your investments has to keep up with the rising cost of living. Even a savings account with cash will lessen in value. If you’re eligible, consider investing in an HSA to help cover healthcare expenses. Continue to invest money in the stock market, even after retirement, as these investments may have a higher chance of keeping pace with inflation.

Work with your advisor to ensure you are saving enough to cover the rising costs of everything, including expenses outside of healthcare.

3. Counting on Inheritance

Many people, especially young people, put off investing until later or plan on some large inheritance to carry them through retirement. While you might believe you have a large inheritance in place, your parents or elders leaving it to you may have to unexpectedly utilize that money for their own long-term health care costs. In this scenario, what you are given is much smaller than planned, with little time to recoup dollars you could have been earning from investing and saving. Even if you have been promised a large sum of money, it is always best to establish a savings plan of your own and count anything extra as a bonus, not something you are staking your entire retirement plan on.

4. Retirement Age vs. Dollars Needed to Retire

Many people make the mistake of planning their retirement around the age they want to retire, instead of by the dollars they need in their account. It's essential to plan with an advisor or trusted source for how much you will need to retire comfortably with the lifestyle you have in mind. You will want to consider the things you need, such as yearly income and long-term care, along with the things you desire, such as vacations. Once you determine a dollar amount that you need to retire, you will be able to work toward that savings goal instead of aiming for an age you want to retire by.

Also, some may overlook the longevity and life expectancy for themselves and their spouse. For a couple aged 65, there is a 1 in 10 chance one of you will live to be 100. Therefore, it is crucial to plan for a longer retirement and long-term care. Failing to factor this into your retirement savings plan could lead to you or your partner outliving your savings.

Depending on your life stage, you should plan to review your retirement goals once a year. As a good rule of thumb, the closer you are to retirement age, the more often you should be meeting with your advisor, spouse, or trusted confidant to make sure your savings and investment goals are still on track. When you are younger, you may conduct an annual review to assess where you are and what needs tweaking. If you are approaching retirement, it may be every quarter to ensure you are in the best position possible upon entering retirement.

You've worked hard to save for a stress-free, exciting retirement; you deserve to cash in on all your hard work. Don't let these myths get you off track. We have professionals waiting to assist you in planning the retirement you deserve.
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About the Author
communityamerica financial advisor joe kraemer
Joe Kraemer

Wealth Management by CommunityAmerica

Joe Kraemer is a Financial Advisor whose passion is understanding what drives members so he can help build a plan to achieve their financial goals.

Securities and advisory services offered through Copper Financial Network (Copper Financial), LLC, Member FINRA/SIPC. Copper Financial is a SEC registered investment adviser. Copper Financial is a wholly-owned subsidiary of CommunityAmerica Credit Union. Wealth Management by CommunityAmerica is a marketing name used by Copper Financial. For important disclosures from Copper Financial, including our Form CRS, please visit here. Investment and insurance products, including annuities:


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