Here are three big retirement myths from MSN Money:
Myth No. 1: You should replace a certain percentage of your income in retirement.
"This replacement rate was developed by the industry in order to promote sales of their mutual fund products and is inappropriate for most households," Kotlikoff says.
Kotlikoff advocates what he calls "consumption smoothing." That means spending more in your working years, when there are more mouths to feed, and less in retirement, when it's just you and your spouse or perhaps just you alone.
To me, the "plan on spending 80% of your current income (or whatever percent) during retirement" is simply a very rough guide, call it a rule-of-thumb. It's an estimate for those people who don't want to (or can't) calculate what they will actually spend then.
Instead, I recommend that people estimate their actual retirement expenses by making up a mock budget. Of course there will be several things you'll have to estimate and you'll need to update it every few years, but still, it will give you a better picture of what you'll actually spend then the "80% rule."
One other tip I follow is to assume I'll get nothing from Social Security and I save accordingly. This way, I'll have plenty of cushion in case I estimate too low on my expenses (because, in actuality, I'll probably get something from SS.)
So, I guess I agree with them on myth #1.
Myth No. 2: You should hold a combination of stocks and bonds in your 401(k).
If you have both tax-deferred retirement accounts and regular investment accounts, you should hold stocks in the regular accounts and bonds in retirement accounts to reap the best tax rewards, Kotlikoff and Burns argue. Equities pay their returns as capital gains and dividends, which are taxed at a 15% rate or lower, depending on income. Bonds pay out interest that is taxed at the income tax rate, as high as 35%. But everything you accrue in a tax-deferred retirement account -- be it capital gains, dividends or interest -- is taxed as income at the higher rate when you take the money out.
I have a small percentage of my asset allocation in bonds and all of them are in tax-deferred accounts. This isn't to say that my only investments in tax-deferred accounts are bonds (I have stocks in them as well), just that all my bonds are in tax-deferred accounts (none in taxable/regular accounts).
Now I'm with them two for two. Here's the last myth:
Myth No. 3: A broker can help you get higher returns.
Although many money managers vow to beat the market, the odds are against it.
"About 80% of mutual fund managers underperform the market," Kotlikoff says. "In addition to buying securities that are risky, you are buying a money manager who is risky, and you are also paying a high price."
"You can do all this stuff on your own without paying high fees," Kotlikoff says. "Just invest in index funds for stocks and TIPS for bonds."
Oh yeah, they're singing my song now. ;-)