7 stupid retirement myths exposed

By Liz Pulliam Weston

Half of American workers haven't tried to figure out how much they need to save for retirement.

Nearly one-third aren't currently saving for retirement, according to the Employee Benefit Research Institute's latest retirement confidence survey, and half of those who have saved have less than $25,000.

It's a pretty sorry state of affairs, especially if any of the following myths are what's preventing you from saving:


Myth No. 1: 'I've got plenty of time'

It's later than you think.

If you don't start saving by age 35, you'll have a tough time accumulating enough for a typical retirement. You'll have less time to accumulate cash before you quit work, and what you save has less time to earn compounding returns. The earlier you start, the better: Someone who begins at age 22 could have 30% more in her retirement kitty than someone who starts even five years later.

That doesn't mean you won't be able to retire if you start late, but either you'll need to save a prodigious amount of your current income (20% or more) or you're likely to have to live on less in retirement.

Myth No. 2: 'I won't live to see retirement'

If you're alive now, the chances are overwhelmingly good you'll make it to your 60s and beyond. Eight out of 10 males and nearly nine out of 10 females born in the U.S. make it to 65. Sixty percent of men and 73% of women are still alive at 75.

Death is unlikely to release you from your obligation to save for retirement, so you'd better get started. For more, read "Yes, you will live to be 80."

Myth No. 3: 'I won't ever want to retire'

You may not have a choice, honey. The typical retirement age hovers around 62, and nearly four in 10 retirees say they were forced out of work earlier than they'd planned because of layoffs, poor health or the need to take care of a loved one, according to the Employee Benefit Research Institute.

Social Security is experiencing a surge in applications for benefits as laid-off workers seek early retirement, even as others are trying to work as long as possible to restore depleted retirement accounts.

Even if you love what you do, it pays to accumulate a "Plan B" retirement fund.

Myth No. 4: 'I need to pay off my debt first'

It could take you years to pay off what you owe. In the meantime, you're missing out on valuable tax breaks, company matches and the power of compounded returns. Every $1,000 you fail to save this year could cost you $10,000 to $20,000 in lost future retirement income.

That's why saving for retirement needs to be the top priority for most people, and other goals should be made to fit around it. Yes, that means it will take you longer to pay off your credit cards, because the money that could pay down that debt faster is going into your 401k. But ultimately, you'll be richer for it.

Myth No. 5: 'I don't make enough money to save'

If you're living at or near the poverty line, this may be true -- but some people manage to save even on small incomes. How do they do it? By making savings a priority. The one factor that explains most of the variation in household savings isn't income, but the amount households choose to save.

Freeing up money for savings may require some lifestyle changes and serious spending adjustments, but your elderly self will thank you for making the effort. For more on constructing a budget that allows you to save, read "How much you should spend on . . ."

Myth No. 6: 'Investing in this market is too scary'

The stock market's a roller coaster, all right, but most of us will need the inflation-beating returns stocks offer if we want to retire comfortably one day. The good news is that the market will eventually recover and rise; in every 30-year period since 1928, stock market returns have averaged out to at least an 8% annual increase.

If you're new to investing, consider a "lifestyle" or "target date maturity" fund that distributes your money among stock, bond and cash options. (Bonds and cash help insulate your investments from stock market gyrations.) If you really can't handle the idea of investing in stocks at all right now, you should still be contributing to your retirement funds. Just choose one of the low-risk, low-return options such as money market funds or stable value funds, until you educate yourself enough about investing to try equities.

Myth No. 7: '401k's are a rip-off because of their high fees'

Some plans do have egregiously high fees, and investors pay the price: For every 1% increase in fees you pay, you can wind up with 17% less cash in retirement. If you work for a large company, however, your 401k plan often gives you access to institutional funds that actually charge less -- sometimes much less -- than similar funds offered to retail investors.

In any case, the solution to high fees is not to boycott your plan, because you'll miss out on tax breaks, matches and compounding. The solution is to contribute and agitate for change.

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