Myths and misconceptions about retirement

Clients sometimes have a difficult time wrapping their heads around just how much money they’re going to need in retirement and (more to the point) how they’re going to manage to save such a sizeable sum. But when they labour under common misconceptions or refuse to take a clear-eyed look at their individual financial situation, they may struggle to achieve their “dream retirement.” Here’s a heads up on some prevailing myths and misconceptions.

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• Biased? Who me? Behavioural economics studies the mistakes investors commonly make with an eye to helping them avoid the same errors in the future. Forbes contributor John Wasik holds forth on the six most common retirement investing mistakes to avoid.
• The 4% rule rules. Recently, many advisors have been questioning the old way of thinking that says if retirees spend four percent per year in retirement over 30 years, they won’t completely deplete their nest egg. This New York Times article by Tara Siegel Bernard explores a few more complex strategies for making that retirement nest egg last.
• “I need to hold onto my home at all costs.” Many retirees are of the mindset that they must stay in the family home no matter what happens. They’re loath to consider it an asset to be sold or monetized to fund their retirement. CNBC’s Andrew Osterland makes the case that clients with limited means should take a clear-eyed look at whether tapping into their home equity will pay off by funding the retirement they want.
• CPP is only crucial for low-income retirees. As this Globe and Mail article by Rhys Kesselman of Simon Fraser University’s School of Public Policy points out, too many middle-income Canadians aren’t saving enough to maintain their living standard in retirement. Here Kesselman takes on the policy merits and shortcomings associated with the voluntary approach to expanding CPP (just floated by the Conservative government) versus the mandatory approach supported by the Liberals and NDP.