Discussing retirement savings is almost like speaking in a different language, especially if you're unsure about your current savings plan or have little knowledge about investments.
If you're confused about the different retirement investment vehicles or don't know how to save for retirement in general, it's important that you do your research. When doing your research, however, you might come across pieces of advice that aren't 100 percent accurate.
Here are 10 retirement savings myths you should watch out for.
Social Security will cover all of my expenses during retirement
If you rely solely on your Social Security checks rather than retirement savings, you might find yourself struggling. Personal finance expert Dave Ramsey wrote on his website in 2010, "If you rely on Social Security for your retirement, you'll be living small. You'll be at the mercy of the government..."
Furthermore, it's been speculated that Social Security will run out by 2033. Even if Social Security is running smoothly by the time you retire, that is not the only income you want to rely on. Consider Social Security as a bonus on top of your well-padded nest egg.
I should pay for my child’s college tuition first
According to a recent T. Rowe Price survey, 53 percent of the parents surveyed agreed with this statement: "I would rather dip into my retirement savings to pay for my kids' college education than have them take on student loans."
It is understandable that parents want to do all they can for their children. Sacrificing your retirement savings for their education, though, will only hurt both of you in the future. If you do not have enough money saved to support yourself in your later years, your adult children might have to shoulder the expenses.
My 401(k) is all I need
This statement is part-truth and part-myth. Sure, some people might only need a 401(k), but perhaps it shouldn't be your only savings plan. Consider investing in a Roth or traditional IRA too.
According to Carrie Schwab-Pomerantz, CFP and president of the Charles Schwab Foundation, "An IRA not only gives you the ability to save even more, it might also give you more investment choices than you have in your employer-sponsored plan."
It’s too early for me to start saving
When you are in your twenties, retirement might be the last thing on your mind. Even those who want to start saving for retirement might find it difficult because there are so many other bills that get in the way.
Cathy Curtis, investment advisor and financial planner of Curtis Financial Planning, LLC, told The Huffington Post, "If workers would start out taking full advantage of retirement saving in the beginning of their careers, they would be so much better off without the stress and worry later on." In other words: Save the money now, and thank yourself later.
It’s too late for me to start saving
There are many advantages to starting your retirement savings account while you are young. But being close to retirement age does not mean it's too late to start saving -- you will just have to work harder and save more now to catch up on your retirement savings plan.
Take advantage of maxing out your 401(k) and IRA. Save as much as you can and perhaps delay your retirement a few years, if possible.
I need a job with good benefits before I start saving
Companies that offer 401(k) contribution matches are great for getting the most out of your savings, but not all companies offer this benefit or even a retirement savings plan. If this is the case, you should invest the maximum into an IRA each year.
Since the most you can contribute annually is $5,500 ($6,500 if you're 50 years old or older), it is also wise to put as much money as you can into high-yielding savings accounts or CDs.
I will spend less money once I’m retired
Another common myth is that individuals will spend less once they are retired. It is true that if you have all of your debt paid off by the time you enter retirement, you will likely have fewer bills. Remember, though, that you might not be eligible for the same tax breaks you qualified for when you were working or paying a mortgage.
Retirement brings a lot of free time, which can mean spending more money. There is nothing wrong with wanting to spend your retirement traveling and splurging. You just need to save and budget for those things now so you can afford them later.
I shouldn’t start saving for retirement until my debt is paid off
Paying off debt is a good thing, but it should not take precedent over retirement savings. The goal is to pay off debt while still regularly contributing to your retirement accounts. You don't want to miss out on the time advantage of compounded interest gained by saving for your retirement earlier rather than later.
I should only invest in bonds
An old financial rule of thumb tells individuals to subtract their age from 100 to know how much to invest in stocks. So if you are 40 years old, 60 percent of your portfolio consists of stocks. You are then supposed to invest the rest in bonds, which tend to be safer. The point is that as you get older, you are reducing your risk.
But because life expectancy rates have increased, this might not be the best advice anymore. Having too much invested in bonds can be threatened by years of inflation. According to CNN Money, "the rule should be closer to 110 or 120 minus your age. That's because if you need to make your money last longer, you'll need the extra growth that stocks can provide."
I need $1 million in retirement savings
One million dollars sounds like a lot of money, and many individuals will probably make becoming a millionaire their savings goal. The problem with this is that $1 million might not be enough to last you through retirement.
According to USA Today, the new $1 million might actually be $2 million. CEO of Pillar Wealth Management, Haitham "Hutch" Ashoo, told the publication, "Thirty years ago, $1 million was a huge amount of money. Today, given today's lifestyles and costs, it isn't so much money." To make sure you're not strapped for cash during retirement, aim to save more than $1 million.
You might not be well-versed in retirement planning lingo, but you can still save confidently for your future. Make saving for retirement one of your priority financial goals today.