repost­ed from thestreet.com
by: Bri­an O’Con­nell
March 19, 2013

It is said that the ancient Greeks had a knack of wrap­ping truths in myths, the bet­ter to com­mu­ni­cate every­day truths.

An inter­est­ing con­cept, but one that won’t wash with our invest­ment experts, who were invit­ed to pick their biggest retire­ment plan­ning myth and debunk it, whether it be how much mon­ey you’ll real­ly need to retire com­fort­ably or the virtues of pay­ing off your mort­gage early.

The ancient Greeks would­n’t approve, but they’re not around to help you with your retire­ment any­way. Here’s a look:

Myth No. 1: $1 mil­lion will guar­an­tee a sta­ble retire­ment.
Expert: Nicole Rut­ledge Regili, lead advis­er with Orlan­do, Fla.‘s Resource Con­sult­ing Group

Not nec­es­sar­i­ly!

First, $1 mil­lion today does not buy you what $1 mil­lion would buy you 20 years ago, thanks to infla­tion. Sec­ond, $1 mil­lion may or may not be your “num­ber.”

That num­ber is deter­mined by many vari­ables, but spend­ing and port­fo­lio returns are the most prominent.

Here’s what I mean: Some­one earn­ing about 7% annu­al­ized for 20 years and spend­ing $200,000 per year would need around $2.2 mil­lion in the bank, where­as some­one earn­ing this same 7% but spend­ing only $100,000 per year needs only half as much, $1.1 mil­lion. There’s a sim­i­lar rela­tion­ship with the rate of return your mon­ey is earn­ing. If your port­fo­lio is invest­ed very con­ser­v­a­tive­ly and earns 4% per year, and you want to spend $200,000 per year, you would need clos­er to $3 million.

Myth No. 2: Health care is your biggest expense in retire­ment
Expert: Chris DeGrace, vice pres­i­dent, Sun­Trust Invest­ment Services

Health care cer­tain­ly is a big cost, but the No. 1 expense is actu­al­ly taxes.

Because many peo­ple are draw­ing on assets that have enjoyed tax defer­ral dur­ing their work­ing years, they are forced to pull mon­ey out of those accounts at ordi­nary income rates. It’s very impor­tant to deter­mine a strat­e­gy that enables you to draw down retire­ment income across all accounts avail­able in the most tax effi­cient way. Ide­al­ly you want to let the tax-deferred accounts grow as long as pos­si­ble. In addi­tion, one would want to focus on the basis of the tax­able assets to decide what funds to spend.

Myth No. 3: Down­siz­ing in retire­ment will save you mon­ey
Expert:
 Car­o­line Delaney, exec­u­tive vice pres­i­dent at San Jose, Calif.‘s Hillis Finan­cial Services

Many clients want to down­size, but their egos tend to get in the way. They think mov­ing into a small­er home will cut back on their month­ly out­lay, but that tends not to be the case. They may move into a small­er home, yet the mon­ey they save in mort­gage pay­ments ends up going to remod­el­ing the home or a new car pay­ment. When giv­ing up the space, make sure you are actu­al­ly reap­ing the benefits.

When down­siz­ing, many retirees also con­sid­er relo­cat­ing to states that have low­er tax­es. This should not be the main con­sid­er­a­tion when look­ing to down­size and relo­cate. State tax­a­tion rates are always sub­ject to change, espe­cial­ly in light of the finan­cial dif­fi­cul­ties many face.

Myth No. 4: You should pay off your home mort­gage ear­ly
Expert: CPA, finan­cial plan­ner for Mack­ey McNeill and pres­i­dent of Belle­vue, Ky.‘s Mack­ey Advisors

It real­ly depends.

If one makes addi­tion­al prin­ci­pal pay­ments to pay off the mort­gage ear­ly, that is dif­fer­ent from some­one who takes $100,000 out of their port­fo­lio and pays off the mort­gage in one big chunk. It’s best to run the num­bers for your­self and see what is best for you. Too often, tak­ing a lump sum at retire­ment to reduce debt cre­ates a very bad result. At a 40% tax rate, you have to take about $160,000 out of your port­fo­lio to retire $100,000 in debt. This means that entire $160,000 is not earn­ing mon­ey for you for the rest of your life.

In addi­tion, today’s mort­gage inter­est rates are at an all-time his­tor­i­cal low. Giv­en that mort­gage inter­est con­tin­ues to be tax deductible (assum­ing one item­izes), the equiv­a­lent inter­est rate is low­er still. One could refi­nance an exist­ing mort­gage (even con­sid­er a cash-out refi­nance) and either invest the rest in a bal­anced port­fo­lio that would allow for cur­rent income and growth of cap­i­tal at a rate greater than the mort­gage inter­est rate and/or pay off high inter­est cred­it card debt.

Myth No. 5: Med­ic­aid cov­ers all of your health care expense
Expert: John Buc­sek, man­ag­ing direc­tor of MetLife Solu­tions Group in Cran­ford, N.J.

Med­ic­aid cov­ers only cat­a­stroph­ic ill­ness, not all of your health costs — that’s why they have Medi­gap and oth­er sup­ple­men­tal cov­er­ages for an addi­tion­al cost.

To read on TheStreet.com please click here. 

Relat­ed Articles:

How much Annu­al Income can Your Retire­ment Port­fo­lio Provide?

Insur­ance Needs: The Basics

7 Tips for Cre­at­ing Prosperity