Out on the golf course, I've overheard some of the game's greatest myths.
How about: "Watch out, I just bought a set of clubs like the ones Tiger Woods uses." Allow me to do some myth busting: Tiger doesn't actually show up to play -- you still have to do that yourself. Or, "Hit it harder, son, it will go further." Nope. If it did, all baseball players would be great golfers.
Myths endure even though they fly in face of logic, yet people still believe them.
The same pitfall plagues retirement planning. For many, it's easier to believe in myths than to face reality. But it's not good to stick your head in the sand, so let's do some more myth busting there as well:
--"I don't need to start saving until I'm in my 40s or until I can afford to save big money." Myth busted: putting a small amount of money into a retirement account earlier can be just as effective as putting a lot of money in later. A $500 401(k) contribution made at age 25, compounded annually at an 8 percent rate of return, could be worth nearly five times as much after 20 years.1 If you wait until age 45, you'll have to contribute over $2,300 to equal what that original $500 may have turned into by then. Besides, starting small is the easiest way to get the ball rolling. Saving just $25 a week for 30 years can result in over $160,000 at that same growth rate. Increase the amount you save as your financial situation allows, but if you wait until you feel you can contribute a lot of money to a retirement account, you'll probably end up waiting too long.
--"Lots of people retire early; it'll be easy for me to stop working when I'm 50." Myth busted: many of those who say they're retiring early haven't actually crunched the numbers to know that they won't be able to sustain themselves through 40 or 50 years of retirement. Others plan to live far more frugally in retirement in order to make their money last. If you want to retire early, you need save early -- and save hard.
--"I'm saving enough to get my company match, so that's enough." Myth busted: I imagine anyone who would say such a thing hasn't calculated whether or not they're on track to meet their retirement goals. Experts recommend contributing at least 10-15 percent of your annual salary to your retirement plan, and even that may not be enough. Do yourself a favor. Talk to a financial adviser or at least use an online projection tool to find out how much you really should be saving.
--"A couple hundred thousand dollars will be plenty to last me through retirement." Myth busted: for some retirees today, it's possible that amount could work; but most people currently in their 20s, 30s, 40s, or even 50s will need to save far more than that to be able to live comfortably through retirement. Again, don't just guess. Either figure it out yourself or talk to someone who can figure it out for you, because you do not want to wait until it's too late to find out you haven't saved enough.
You can't rely on myths, not to improve your golf game and certainly not to improve your retirement outlook. But with planning and focus, you can be well on your way to achieving the retirement of your dreams.
Scott Holsopple is the president of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.