Some Traditions Need to be Broken

The holidays are officially upon us and with a house full of young kids that can only mean one thing: time to start planning. If your family is anything like mine, planning for Thanksgiving doesn’t start the week of. Even though there’s a pretty set standard of how the day will go, there’s been an family email chain for the past week where we clarified what time we are expected to arrive and most importantly who was bringing what dishes.

I read recently that the average American plans more for vacation than they do for retirement and it is safe to say the same about the holidays. Why is that most will take the time to plan out every detail of an event that will last a few hours, but take at face value assumptions that could affect the rest of their lives? This holiday season, I encourage you to spend at least a few minutes of your time digging a little deeper into some age-old retirement traditions (or rather misconceptions) that need to be set straight.

Myth #1: ‘If I have $_____, I will be able to live comfortably in retirement.’ Reality: There is no magic number. Maybe you have an idea of what it takes you to retire, but that number could look substantially different from your friend down the street. The amount you need in retirement is driven primarily by your retirement spending and long term goals. Does your current employer pay for the cost of your medical care? You may not need as much as someone else who has to pay these bills out of pocket. Planning to buy a second residence out of state? You’ll need to account for that as well.

Myth #2: ‘Once I retire, all of my money should be in ‘conservative’ investments like bonds, cash, and CDs.’ Reality: Asset allocation is specific to a person/couple, not an entire life-stage group. This may have been true fifty years ago when life expectancy through retirement was relatively short. Today, the average couple has a 97% chance of at least one spouse making it until age 93. If that same couple retires at age 65, they need their funds to last them for another 28 years! This isn’t exactly a short-term investment outlook and you’ll likely need more saved up than those with a long-term investment strategy.

Myth #3: As long as I only withdraw 4% of my portfolio, I will have enough money to live off of. Reality: This is one of the oldest retirement assumptions in the book driven largely by market assumptions. While it may not be entirely wrong, it was never meant to provide a guarantee of security in retirement. Similar to Myth #1 above, this assumption isn’t dynamic enough to forecast what retirement looks like for you, your way.

So just like with the holidays, you could assume that the way things have always been with retirement planning are the way they will continue to be. Nevertheless, just like your family member that changes up the recipe on her dish each year, the truth is that the difference is in the details and minor changes can make a big impact on the end result.

Work with a CFP® professional to see if you are on track for the retirement you’re expecting.

Published in the Victoria Advocate

Sara Potts is a CFP® professional for KMH Wealth Management, LLC.