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Time to Bust These 5 Retirement Myths That've Been Around for Long!

Team Jar
November 28, 2022
Time to Bust These 5 Retirement Myths That've Been Around for Long!

Started earning but keeping retirement plans for hold because ‘abhi toh time hi time hai’? Read this blog that breaks all the perceptions on retirement you’ve had until now so that you can start working on retirement goals today!

"Get rich and retire by 45" - this seems to be the plan for many millennials who eye the fastest way to get out of their work lives. 

However, in the pursuit of building wealth, plenty of people get retirement planning wrong - often affecting their accounts and future plans. 

The proliferation of myths surrounding wealth creation seems to rise with the aid of social media. 

To counter this, we've curated a list of the top 5 myths surrounding retirement funds so that you get a grip on reality and work towards your retirement goal head-on!  

Myth #1: Starting to save in your 20s is too soon

Most people don’t bother to save when they’re starting out as professionals. It's a common misconception that people can start saving for retirement in their 40s. 

People think that since salaries are low initially, it would be preferable to make more significant contributions as salaries increase. 

However, small savings made during the early years of employment are more advantageous than larger investments made later in life. 

A SIP (systematic investment plan) of Rs 1000 over 35 years, compounded at a rate of 15% annually, can yield around Rs 1.45 Cr; however, Rs 10,000 over 10 years will only net you Rs 27.5 lakh while achieving a comparable return.

Myth #2: Older age equals lower risk

To determine your perfect bond allocation, there was once a saying in investing that went like this:

‘Bonds percentage equals 100 minus your age at present.’

So, if you're a 20-year-old investor, equities account for 80% of your assets. When you reach the age of sixty, only 40% of you remain. 

On the surface, it makes sense. As we age, we might have less time to recover from terrible markets.

If inflation is less of a worry, perhaps we don't need to expand the money as much. Age is still frequently cited as a proxy for a portfolio's appropriate level of risk. Investors may ask, "How much stock should I own now?" 

Age is a poor proxy for risk tolerance, and using it as such can result in significantly inferior results over the course of your investment career.

We examine a portfolio's risk in light of two vectors:

  • The willingness to take risks
  • The capacity to accept risks

Let's talk about capacity first.

Your time horizon, anticipated withdrawals, and degree of flexibility all influence how much risk you can tolerate.

The easiest of these is the time horizon. When do you anticipate taking money out of your investments? There is a roughly 75% likelihood that the market will be up in any given year. 

Alternatively, we should consider it as a 25% possibility that the market will decline. We want to eliminate stock assets three to five years before the anticipated spending to prevent that.

How much money will be required is determined by the anticipated withdrawal need? You can be much more proactive than someone who needs 5% of their savings yearly if you only plan to require 3% each year. Therefore, you must consider how the projected spending appears.

Although flexibility may be the most difficult quality to measure, this is also where some of the most critical financial planning issues arise. There is a lot of flexibility in other areas. Maybe you keep working for another 12 to 18 months while you wait for a recovery if the market is weak in the year you anticipated retiring.

Myth #3: You can work till retirement

People think they will keep working past the typical full retirement age of 60 or 65. However, it is impossible to predict whether you will be able to work till age 65. 

Often, many people retire early against their will owing to unfortunate events, such as health problems or moving to a foreign nation. 

As a result, you should begin saving for retirement in your early years and not rely solely on savings from your final years of employment.

Myth #4: Depend more on bonds than equity

It's a fallacy that one should steer clear of stocks and instead invest in bonds, which are secure investments for retirement. However, most people don't realize that bond investment returns may be reduced by inflation. 

One can invest in equities directly or through professionally managed equity mutual funds while developing a 30-year retirement plan. Equity offers the best return if you expect to invest for at least 25 years.

Myth ₹5: Social Security will cover my retirement expenses

People typically don't worry about their retirement throughout their working years because they believe their social security benefits would cover their expenses. 

However, given inflation and the outdated design of defined benefit plans, social security benefits do not ensure that a person can maintain the same level of living in their post-retirement years.

Thus, a few of these retirement planning misconceptions may prevent us from developing an appropriate and right strategy to meet our demands during our post-retirement life stage. 

A sincere financial planner makes every attempt to dispel and dispel these beliefs. To create a good retirement plan, one must be aware of the implications and seek professional counsel.