Not only are many Americans falling short on saving for retirement, they also have gaps in understanding key elements of planning for their golden years, according to a new study from Fidelity Investments.
“Regardless of whether they're in good shape or there's some sort of a shortfall, there are steps that they can take and time-proven fundamentals that will help them get to where they need to go," John Boroff, Fidelity’s director of retirement and income solutions, told Yahoo Money.
But, he added, these retirees need to have the right facts, which the survey indicated may not be the case with everyone.
The survey, which polled online a nationally representative sample of 1,204 non-retired adults with at least one investment account, found that there are five common retirement misconceptions shared by Americans.
Underestimating retirement nest eggs
According to Fidelity, a retirement nest egg should be worth 10 to 12 times your last full year of working income, but it varies depending on several factors like desired lifestyle and life expectancy.
"A lot of people underestimate what they're going to need to live in retirement,” Boroff said, citing that only 1 in 4 respondents accurately indicated the recommended savings amount. Half of all respondents thought the figure would be only five times their last full year of working income or less.
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How much to withdraw in retirement
Tapping into a nest egg isn’t a free-for-all. Financial planners suggest withdrawing only 4% to 6% annually, which far outpaced the 10% to 15% annual withdrawal rate that more than a quarter of respondents thought was appropriate.
Conservative spending will extend a nest egg’s life rather than using up retirement savings quickly.
Assuming market returns will be negative
Heading into retirement amid a down market is actually the exception and not the rule. Statistically speaking, someone’s more likely to retire when the market is up rather than down because 26 of the past 35 years have seen positive returns.
However, popular opinion is the opposite and almost three-quarters of Fidelity's respondents believe the stock market have seen negative returns more frequently than positive ones over the past 35 years.
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Just as those headed for retirement in 2008 couldn’t have predicted their portfolios would take a hit after the financial crisis, Boroff warned against looking at a single year “in isolation” because “a given year can be very misleading.”