Charles Schwab Report Busts Nine Myths of Retirement Planning

Misconceptions, misinformation and miscommunication are prevalent when it comes to retirement planning. Planning for retirement can be a stressful ordeal already, particularly for those over the age of 50. Add faulty understanding to the mix, and some retirees can actually destabilize even the most protected of financial plans.


Brokerage house Charles Schwab recently released a survey of nearly 1,000 respondents between the ages of 30 and 79 with an annual household income of at least $35,000 to get their views on the dos and don’ts of retirement planning. According to the “Money Myths” survey, those who believed themselves to be the most knowledgeable about financial planning were actually more likely to house misconceptions about the subject. Inaccurate information coupled with overly optimistic confidence in one’s financial planning habits can lead to risky – even detrimental – consequences, so make sure you have all the facts in place about retirement planning before it is too late.


Here are a few of the common myths respondents held about retirement planning:


Myth #1: Retirees should not have their money invested in the stock market.

According to the survey, 38-percent of respondents inaccurately claimed that retirees should not have their money in the stock market.

Stocks are essential assets in most people’s portfolios, including retirees. While it is recommended that older adults gradually decrease the percentage of stocks in their portfolios as they age, a diversified selection of stocks – whether in the form of individual stocks, mutual funds or ETFs – is the best way to protect your portfolio against long-term inflation.


Myth #2: You should start taking Social Security payments as soon as you’re eligible.

More than 50 percent of respondents thought that retirees should begin reaping the benefits of their Social Security checks as soon as possible.

Often, retirees who file for Social Security payments early or during their normal retirement age are leaving money on the table. By filing early, your benefit is reduced by five-ninths of 1% for each moth prior to your normal retirement age, which means you receive a smaller payment each month. Those who utilize strategies to hold off on receiving their payments up to the age of 70 are actually credited for delaying their payments and, in turn, receive larger payments. The timing is based, of course, on your personal financial circumstances upon retirement. The strategies for making the most out of your Social Security payments are complex, and it is important to carefully weigh the benefits and options of your particular circumstance with the help of a financial professional.


Myth #3: By the time you reach 50, it is too late to change your financial future.

One in four respondents surveyed said it is too late to make a significant impact on your financial portfolio by the time you turn 50.

More than one-third of Americans say they don’t plan on retiring until the age of 70 or older, which means that a 50-year-old still has anywhere from 15 to 20 years of savings ahead. Additionally, there are catch-up contribution provisions in the tax code that are designed to help those who got a late start or fell behind.  


Myth #4: Your 401(k) is a good place to turn for a loan or withdrawal if you need cash while you’re still working.

One-third of respondents said your 401(k) is a good place to borrow cash if you need it when you’re still working.

Prematurely withdrawing or borrowing money from your 401(k) plan is dangerous and can derail your retirement savings. A 401(k) loan might seem appealing because of the low interest rates, but not only are you paying back the loan with after-tax dollars, but you will also be taxed again when you withdraw the money in retirement. A 401(k) withdrawal is even more risky, as it is subject to taxes and a 10% penalty. Borrowing or withdrawing from your 401(k) should be an absolute last resort in an emergency situation. In either case, if you are unable to repay the withdrawn or borrowed expenses, the consequence can be quite costly.


Myth #5: You should purchase long-term care insurance in your 40s or younger.

Nearly half of respondents surveyed thought it best to purchase long-term care insurance by 40 years old.

For those in good health, the best time to consider long-term care insurance is between the ages of 50 and 65. Although your annual premium is lower if you purchase in your 40s or younger, you will end up paying more over a longer period of time by purchasing it too early.


Myth #6: Every adult should have life insurance.

Seventy-eight percent of respondents inaccurately believe that all mature adults should have life insurance.

Believe it or not, life insurance is not for everyone. Life insurance is optimal for those with children or other dependents, for business owners, or for those with significant liabilities that will continue long after you’re gone. While most people need it, retirees without dependents or large liabilities would simply be wasting money.


Myth #7: The best way to ensure your property is distributed the way you want is through a will.

A whopping 91% of respondents thought a will was the best way to ensure that your property is distributed how you want.

Although a will is necessary; it is not sufficient to ensure your property and assets are distributed how you intend. If your will and financial accounts are inconsistent in naming identical beneficiaries of your property, the designations in your financial accounts trump those in your will.


Myth #8: You should eliminate all your debt before you retire.

Eighty-eight percent of survey respondents said it is important to eliminate all debt prior to retirement.

Your personal circumstance, tax situation, and the type of debt you’re beholden to are all important factors in determining whether or not you should pay off your debt before you retire. Some debt – like a mortgage loan – is good debt because it can lower your interest and is deductible. Bad debt, on the other hand, should be paid off by the time you retire. Bad debt includes forms of consumer debt, like credit card debt, that are non-deductible and equal high interest.


Myth #9: If you need more money after retirement, you can always get another job.

More than one-third of respondents surveyed said they expect to receive income from a part-time job during retirement.

Predicting that you will be able or willing to work after retirement is a risky forecast to rely on. Although expectations of good health and a desire to work after retirement remains relatively high with 39% of respondents indicating that they expect to receive income from a part-time job during retirement. On the other hand, current statistics show that only 4% of current retirees actually receive compensation from part- or full-time employment.


Charles Schwab’s “Money Myths” survey showed that even those who thought of themselves as financially savvy individuals harbored at least a few myths or misconceptions about everyday aspects of financial planning. The best way to avoid making financially-detrimental mistakes based on these common myths is to educate yourself with facts and plan your future with a trusted financial advisor by your side.

A Woman’s Guide to Investing with a Financial Advisor

Women today are increasingly becoming breadwinners for their families, gaining ground in the boardroom, and are raking in higher salaries than ever before. With these changes, 21st century women have a greater need for sound advice when it comes to managing their finances; however, according to a 2013 survey by TIAA-CREF many women do not turn to a financial advisor for advice.

Certain circumstances, such as becoming widowed or inheriting a large sum of money, create an immediate need for women to seek help about how best to manage their finances. While many women understand the importance of seeking help from a financial advisor, a great number are simply uncertain about how to approach this new professional relationship.

Here are a few simple steps to get you started:

Step 1: Get Organized

For any woman who comes into a sum of money – whether it is the result of a pay raise or an inheritance – the first step toward approaching your new financial situation is to gather and organize as much information as you can to paint an accurate picture of your current financial situation.

During your initial consultation with a financial advisor, he or she will undoubtedly ask you questions about your financial position, so having a good understanding about your existing assets and expenses, retirement account plans and insurance policies will ensure you are thoroughly prepared for your initial consultation.

Step 2: Outline Your Financial Goals

If you decide to work with a financial advisor, think about what you want out of the relationship. Is your ultimate goal to save for a comfortable retirement? Do you need help calculating and investing in your children’s college education? Or are you simply seeking investment guidance or exploring your financial options?

Men and women have different investment styles and priorities, so in addition to concrete milestones you hope to achieve, make sure you come to the table prepared to discuss your financial priorities, commitments, personal risk tolerance and expectations to better hone the dialogue you have with your financial advisor.

Once you have a basic understanding about your current financial situation and goals for the future, you are now ready for your initial consultation.

Step 3: Ask Questions & Communicate Openly

Financial advisors run the gamut, ranging from risky to conservative, mutual fund-focused to options-oriented. If you don’t already have an advisor, ask your friends, family and colleagues to recommend financial advisors to you, or do a simple search for advisors nearby. Employers often also have resources available that can help you find and select a financial advisor that best suits your needs.

In exploring your options, be sure to ask questions and be open and honest about your comfort level in risk-taking, knowledge and skill in investing, and your financial goals and expectations.

If widowed, remind your existing advisor that you are not your husband and that your financial needs may differ from his based on your experience or investing style. If your late husband’s investing style was an aggressive one and you like to err on the side of caution, you may need to ask your investor to pull on the reins a bit to cater to your comfort level. Without open and honest dialogue, your financial advisor may resume the same approach he or she took in the past, so be sure to manage your financial advisor’s expectations if differences arise out of your new situation.

In your meetings with prospective advisors, they will surely want to get to know you, but it is also important to get to know your financial advisor as well. He’s heard your goals and expectations; now what are his? How does your financial advisor prefer to communicate with you? Do his priorities seem to align with yours? These are just a few of the questions you should ask before narrowing the field and finding the financial advisor that works best for you.

Step 4: Educate Yourself

One Prudential study revealed that 78 percent of women thought of themselves as beginners or in need of help in many areas of finance, compared to 63 percent of men. No matter where you’re starting from, don’t let inexperience in finance or investing stop you from asking questions and learning from the pros.

Youradvisor may present you with educational opportunities to learn more about investing. Take advantage of these! There are a number of group events that are geared specifically toward women investors. These networking or social events are a great way to meet with other women who share similar financial goals and concerns, ask pointed questions to financial professionals, and listen and learn from thought leaders in the industry.

There are endless resources available to women who are interested in educating themselves about finance and investing, including seminars and roundtables hosted by local financial institutions and colleges, community group discussions and networking events with other likeminded individuals. Or, if independent study is more your speed, there are countless online resources and print publications that can help you gain access to a wealth of financial knowledge.

Just like any solid progress; financial literacy and confidence does not happen overnight. It takes time for women to evolve into the savvy, confident investors they hope to become. By outlining goals and expectations, being open and honest with financial advisors, and taking advantage of the educational opportunities available, women are well on their way toward boosting their confidence in their financial portfolios and building a sound investment for the future.

Is your 401(k) Choice “Badly Broken”

This blog post was contributed by Evan Miller of FMB Wealth Management.  Evan can be reached by email by clicking here The attached article “401(k) Choice Is Still Badly Broken” (Click Here to View) is one of many recent articles that points to … [Continue reading]