Common Retirement Savings Myths

MoneyWatch's Eric Schurenberg debunks common myths about how to fatten up your retirement savings. And just how much money should you squirrel away? Here's a rule of thumb for calculating how big of a nest egg you'll need.

Here's an idea that I hope you checked at the door of this new post crash era of investing, that if you keep loading up on the highest returning funds in your 401K or buying up real estate investment properties you can retire rich. The real truth is if you're not wealthy today investing isn't likely to make you so. Yes you'll probably be more secure than neighbors who didn't save but your portfolio is not your key to the aristocracy. Real upward mobility over your lifetime comes from using your human capital, your education, your career, your talents, your work ethic, your creativity. In fact, setting your investment goals too high can be counter productive because it might tempt you to take too much risk. Investing prudently for retirement probably won't make you rich but investing foolishly as we've learned can make you poor. So rather than aim to get the highest possible return in your 401K and other savings aim to get enough to comfortably maintain your current standard of living and to guard against inflation. As a rule of thumb financial planners say you should target a nest egg equal to 25 times the income you need that won't already be covered by social security or a pension. And then aim to get there with minimal risk. That means first of all you should save a lot at least 10% of your income more if you can swing it and then invest as conservatively as you can while still giving yourself a high probability of making your goal. The definition of winning in investment isn't that you get the highest return it's that you get enough and you get it with the least amount of worry.