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Five Misconceptions About Retirement
Myths and reality when it comes to your retirement
by Lisa Taranto Schiffer and Emily Novick of Tegra Financial Partners, a subsidiary of Habif, Arogeti, & Wynne, LLP
January 23, 2008
S
oon, baby boomers will start leaving the workforce permanently, so retirement isn't just
something to prepare for anymore; it's about to become a reality.
Atlanta Woman
magazine wanted to bring you a few misconceptions about retirement. We asked
Lisa Taranto Schiffer and Emily
Novick of Tegra Financial Partners, a firm that provides individuals and business
owners with comprehensive financial planning and asset management, to tell you what, in their eyes,
is a myth and what's a reality when it comes to your retirement.
Myth Vs. Reality
Myth #1
: In retirement, my expenses will decrease and I will not need as much income as I do now.
Reality:
A common assumption people make is that their overall expenses will be lower in retirement
than they are currently. This notion is based on the fact that items such as education,
childcare, and mortgage payments may already be funded. While some current expenses will
decrease or disappear altogether, a whole new layer of expenses can appear as we enter retirement
such as increased health care costs and funds spent on travel and leisure.
Additionally, it is important to have realistic expectations as to the role that Social
Security will play in terms of your retirement income needs. For most people, Social Security
is more of a safety-net program than a primary source of retirement income. The younger
generation of today’s workforce may have little or no income assistance in retirement from the
Social Security system. For this reason, it is important to be proactive in saving for
retirement through employer-sponsored retirement plans and other tax-advantaged vehicles outside of
the Social Security system.
Myth #2:
Cash is always a safe way to preserve wealth.
Reality:
The notion “I am going to stick my money under the mattress” is not as safe a way to preserve
your wealth as you might think. Over time, inflation will erode the purchasing power of your
dollar. For example, if the average inflation rate in a given year is 3 percent and you keep a $100
bill under your pillow all year, your $100 can now only buy $97-worth of goods (in the previous
year’s terms).
While it is prudent to always have several months’ worth of expenses held aside in cash
reserves, remember that your real return excludes taxes and inflation, and if too many of your
assets are in cash accounts earning little or no interest, or you may find you are “safely” losing
the value of your money.
Myth #3: The Dow Jones Industrial Average is down, therefore my investment accounts must be
down. The sky is falling!
Reality:
While indices such as the Dow Jones Industrial Average and the S&P 500 serve as good
barometers of the broad domestic stock market, it is important to keep perspective on what they
represent. The Dow Jones is made up of 30 of the largest U.S. companies. Unless you own
the exact components of these indices, it is likely that your own investment performance will
differ from what you may hear on the radio or television, especially if you have a properly
diversified portfolio which holds stocks and non-equity investments, such as bonds, real estate and
commodities.
When saving and investing for long-term goals such as retirement, it is important to be
disciplined about weathering short-term market volatility. Maintain a diversified asset
allocation and rebalance your portfolio periodically. Remember that until you need to use
these assets, no loss has been realized.
Myth #4: International investing is only appropriate for investors who have a high
tolerance for risk.
Reality:
While investing globally does carry political risk and exchange- rate risk relative to
domestic stocks and bonds, international investing can reduce overall risk in portfolios by adding
a layer of diversification to your domestic holdings. By limiting your investments to those
domiciled in the U.S., you may be missing opportunities in a significant part of the world’s total
market capitalization. Since studies have shown that approximately 90% of investment returns
can be attributed to asset allocation, it is important that your portfolio is well diversified,
rebalanced periodically, and that your asset allocation and overall risk is reviewed as your
financial situations change.
Myth #5: I do not need to buy Long-term care insurance; my family will take care of me.
Reality:
Although many of us count on our families for unconditional support, this is not always the
practical reality. Family members may not be in close proximity to us as we age, not to mention the
fact that they will likely be busy with their own families and jobs. It is likely that
our family members may not be able to commit the time needed to be a primary caregiver, nor would
many of them have the training and education necessary to do so. It is important to
understand that standard health insurance will probably not cover all of the expenses that may
arise as we get older.
According to a Genworth Financial Cost of Care Survey completed in 2005, the national
average for a year of nursing home care was over $61,000 for a semi-private room, while the average
cost for in-home care from a home health aide was $22.43 per hour. It is important for
women to understand how long term care costs could potentially affect them because not only are we
commonly called upon to act as caregiver, but we are more likely to live longer, thus making it
more likely for us to need long term care services sometime in the future.
Lisa Taranto Schiffer and Emily Novick are registered representatives of Securities America Inc., Member FINRA/SIPC. Lisa may be reached @ 404-898-7550 or lisa.schiffer@hawcpa.com or www.Tegrafinancial.com.
