The likelihood of a successful retirement comes down to one overarching factor: mathematics.
Therein lies the problem: the kind of mathematical gymnastics required to design a successful retirement is beyond the reach or determination of many investors. Many would prefer to accept a guideline as absolute truth, sign on the dotted line, and get on with their lives.
Perhaps this is why retirement myths are so commonly accepted. The math is complicated, many don’t know where to start, and nobody knows what the future holds anyway.
That doesn’t mean investors should accept retirement myths. To the contrary, every investor should accept the question of retirement as a complicated one and educate themselves to ensure their financial advisor has their best interest in mind.
Here are some of the most detrimental myths:
1. Investors should only plan for a 20-year retirement.
Life expectancy is going up. It’s not what it once was.
The Office for National Statistics revealed that nearly 85,000 people (living in the United Kingdom) aged 65 in the year 2013 are expected to reach 100 years of age in 2048. They also revealed that around one-third of babies born in the year 2013 (also living in the U.K.) are expected to live to 100.
Investors should examine current facts about life expectancy and realize that many life expectancy figures are averages. You might be an exception and live well into your 90s or 100s.
“You might never retire. Yes, you read that right. I can count on one hand (ok, maybe two) how many of my clients actually hang it up and retire. With life expectancy increasing and our natural craving to contribute to society, I’m seeing more and more clients reinventing themselves in their 60’s and 70’s and finding a new passion to pursue. At the very least, I see many people working part-time in the prior occupation or volunteering. It’s important to save enough to know that you are able to retire comfortably. But consider the idea that you might want to continue working in some fashion and start to think about what that might look like”, says Taylor Schulte, CFP® a San Diego Financial Planner and founder of Define Financial.
The ideal scenario for an investor is to invest enough money throughout their working years to create a sustainable portfolio – one that supports the investor through dividends and positive returns. If this isn’t feasible, the next best course of action is to anticipate a long retirement and manage investments according to those expectations.
2. Retirees can withdraw 4 percent from their portfolios and always maintain their portfolio value.
You may have heard that retirees can withdraw 4 percent of their investments every year without shrinking the size of their accounts.
But there are a number of sneaky variables that make 4 percent an unreliable withdrawal rate – especially over the long-term.
According to Next Avenue, a contributor for Forbes, when the 4 percent rule emerged, investment portfolios were seeing an 8 percent rate of return. But today, those portfolios are seeing a 3 to 4 percent rate of return.
Earnings vary over the course of retirement. Because of this, a retiree would be wise to make ongoing calculations based not only on their realized rate of return, but also on their needs.
Should a retiree’s needs change, there may be more incentives to lower their withdrawal rate or raise it during times of crisis.
3. Investors should aim for $1 or $2 million in investments for their retirement.
It may be tempting for investors to think of an arbitrary amount of money as what they’ll need for retirement. Some like to think of $1 million as enough. For others, $2 million sounds reasonable.
While it may be fun to aim for $1 or $2 million, investors who come up with a casual target may be surprised by the devastating affects of their actions upon retirement.
Instead, investors should choose a number based on reasonable assumptions such as conservative rates of return, expected inflation-adjusted expenses, and projections of alternative income sources (such as Social Security or business ventures).
For those who are near retirement without investments, it may be too late to build a sizable portfolio that can sustain them throughout their latter years. In these cases, near-retirees would be smart to consider some ways to lower expenses through budgeting or increase income through strategic business pursuits. They would best be served, like so many others, to ignore the myth that what they need is $1 or $2 million in a portfolio.
Investors limit themselves when they buy into these retirement myths. The good news is that with a little education, a little work, and a little patience, investors can achieve the retirement goals that are right for them.
This post originally appeared in Fortune.