3 Retirement Myths

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I agree with Laurence Kotlikoff there should not be a set replacement value for retirement income.
In Chapter 1 of my bestselling retirement book I give eight good reasons why the large majority of retirees, whether they live in Canada, the U.S., or other Western nations, can live on far less than 80 percent of their pre-retirement income.
Here are the 8 reasons:
1. Most retirees have their homes paid off and no longer have to pay a mortgage.
2. Retirees no longer have the expenses
associated with employment such as daily
commuting and the need to purchase clothing
suitable for a work environment.
3. Because their income is lower, and they wind
up in a lower tax bracket, retirees pay much
lower taxes than they did when they were
working.
4. Retirees can move to a new location where the
cost of living is lower.
5. Retirees’ children are grown up so they don’t
have to pay for their education anymore.
6. Retirees can get seniors’ discounts on practically everything they buy.
7. Retirees don’t have to earn extra income to set aside for retirement savings.
8. In their later years, most people are not as insecure and ostentatious as they used to be; thus, they don’t need material goods to validate themselves in the eyes of others.
Interestingly, government statistics indicate that present retirees live comfortably on 45 percent to 62 percent of their pre-retirement income.
Ernie Zelinski
Author of "How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor"
(over 100,000 copies sold and published in 7 foreign languages)
Featured at: www.retirement-cafe.com
and http://www.love-a-recession.com

Ernie Zelinski 11:35PM February 27, 2009

I find the comments about not using and paying for professional advice curious.Do you folks not use CPAs or estate planning attorneys? Numerous studies have indicated that investors using qualified professional advisors have better long term returns than investors that do not. I for one wanted out of the market near the end of 2002. My advisor held my hand, talk some sense into me and I am very glad he did. It is easy to get out of the market but very hard to know when to get back in. Timing the market is a losing game.My very wealthy & intelligent associates use financial advisors.Most average folks do not know IRA from 401K or mutual fund from a money market account much less asset allocation of a portfolio to meet retirement needs.The American Funds in my 401k plan have performed significantly better than their comparable indexes over the last 20yrs.From what I can see,most of their funds have outperformed their comparable indexes. Maybe the American funds is an exception to the rule. A little good professionl advice could save thousands of dollars and is money well spent.

J.Parce of ID 3:18PM July 16, 2008

I find the comments about not using and paying for professional advice curious.Do you folks not use CPAs or estate planning attorneys? Numerous studies have indicated that investors using qualified professional advisors have better long term returns than investors that do not. I for one wanted out of the market near the end of 2002. My advisor held my hand, talk some sense into me and I am very glad he did. It is easy to get out of the market but very hard to know when to get back in. Timing the market is a losing game.My very wealthy & intelligent associates use financial advisors.Most average folks do not know IRA from 401K or mutual fund from a money market account much less asset allocation of a portfolio to meet retirement needs.The American Funds in my 401k plan have performed significantly better than their comparable indexes over the last 20yrs.From what I can see,most of their funds have outperformed their comparable indexes. Maybe the American funds is an exception to the rule. A little good professionl advice could save thousands of dollars and is money well spent.

J.Parce of ID 3:18PM July 16, 2008

Rental property for 50,000 that rents for 750 / month =9000/yr
- vacancy,taxes, repairs and management (3000)=6,000/yr
= .12 return + appreciation + equity line + ....

Nicholas Hord of CA 3:31AM July 08, 2008

Hi Mark of CT,
Fidelity's Spartan Index Fund costs .1 percent. And if you buy TIPs from Treasury Direct, the cost is also very low. You may already hold bond-like assets, like Social Security, at zero cost. Buying a world equity index fund with Vanguard at 30 basis points (I believe that's what they are charging) and some low-cost REITs may leave your overall cost of funds at .1 percent. best, Larry

Laurence Kotlikoff of MA 9:16AM July 07, 2008

Emily - Yes, the federal TSP did have an expense ratio of 0.03 in 2006, but do you or, more importantly, the editors of US News think it is responsible journalism to NOT mention the fact that the TSP is ONLY available to current and former federal employees? Reading your article and your reply one would infer that anyone could invest in the TSP, which is simply not true. Am I wrong? That is poor journalism. And I still challenge you and your friends to find a DIVERSIFIED portfolio at an expense ratio of 0.10! And please - list your funds! Diversified means different things to different people, but I think most people would agree it includes bonds(as your article suggests), international stocks and small stocks. I know Fidelity has index funds with a 0.10 expense ratio, but there are no bonds, no international stocks and very few small caps included. Vanguard does have diversified retirement funds with an expense ratio about 0.20. Prove me wrong and if you can't at least admit that there were errors in you article.

Mark Holzthum of CT 7:29PM July 06, 2008

Mark - The federal Thrift Savings Plan has had an expense ratio as low as 0.03 percent. And it is possible to achieve an expense ratio of 0.1 percent by investing in low cost index funds.

Emily Brandon of CA 7:37AM July 06, 2008

I challenge Emily Brandon, Laurence Kotlikof and Scott Burns to go hand in hand to find a diversified portfolio at their "reasonable" expense ratio of 0.10. Forget bonds. Forget small caps (extended market and total market funds cut small caps short). Forget international stocks. Forget emerging markets. Forget reits. And most importantly, forget decent returns for the last decade. The overall premise of the article has its merits but when you are dealing with financials - NUMBERS MATTER! And by the way who has an ultra low cost plan with an expense ratio of 0.03? Emily Brandon's abilities as a financial writer leave much to be desired if she doesn't question the numbers in her article.

Mark Holzthum of CT 6:27PM July 04, 2008