When it comes to planning for retirement, there are lots of rules of thumb. Unfortunately, many of these rules are heavy on the thumbs and light on the rules.
Here are a few misleading thumb rules and the tougher truths behind them:
Thumb #1 – How much of your funds should be invested in stocks – just subtract your age from 110 to arrive at the percentage.
Truth #1 – Everyone’s retirement needs and time horizons are unique. There is no simple answer to the proper stock exposure.
Thumb #2 – Everyone should convert to a Roth IRA.
Truth #2 – Beware those “everyone” statements. There are significant nuances to when and why a Roth IRA conversion might make sense.
Thumb #3 – I’ll leave my 401k with my former employer, since there aren’t any fees involved.
Truth #3 – Investment expenses in a company retirement plan are typically much higher than you could find on your own. Plus, your investment options are dictated by the Plan Sponsor, with whom you no longer have a relationship. MOVE those dollars to your own IRA! Pronto!
Since being all thumbs is a bad thing, it should stand to reason that rules of thumb can’t exactly be good things, right? Idioms aside, always educate yourself about your options and make sure you understand how investing applies to your personal situation.
Until next time, here’s mud in your eye.
D DRUMMOND OSBORN, CFP, is a Certified Financial Planning practitioner and Director of Wealth Management at Osborn Wealth Management, where he focuses on investment management, financial advice and retirement planning services. Visit him on the web at www.osbornwealthmanagement or e-mail your questions to Drummond@osbornwealthmanagement.com.
