8 common financial planning myths

A financial plan can help you build wealth by defining your goals and identifying appropriate steps you can take to help achieve them. But has misinformation kept you from creating a plan?
Consider these eight financial planning myths.
Myth #1: You need to have money to develop a financial strategy.
When you try to reach a goal, you don’t wait until you’ve met it to develop a strategy. If you don’t have much money, a financial strategy could be even more valuable, as it can help you prioritize what to do first. Maybe it’s paying down debt or ensuring you have an emergency fund in place when the unexpected occurs. And since how long you save is one of the most important factors in how much you have for retirement, the sooner you get started, the better.
Myth #2: There’s no risk to holding cash.
When it comes to saving for retirement, the biggest risk you face is not in the stock market — it’s not reaching your retirement goal. When you’re many years from retirement, you can afford to take more investment risk and allocate more of your portfolio toward investments with higher return potential, such as stocks and stock mutual funds.
While it’s important to have some bonds for diversification and cash on hand for emergencies (we recommend three to six months of expenses in an emergency fund), having too much in cash can prevent you from reaching your long-term goals.
Myth #3: Social Security is going bankrupt.
Based on current projections, Social Security is not going bankrupt. If no changes are made to the program, Social Security will need to reduce benefits in 2033, paying about 79 cents for each dollar of projected benefits, according to the 2024 Board of Trustees Report issued by the Social Security and Medicare trust funds.
While changes will need to be made to ensure its long-term viability — like potential changes to the benefit age or the payroll tax — at Edward Jones, we believe Social Security will likely remain an important part of an individual’s retirement income strategy. And while you can’t control what, if anything, will change with Social Security, you are in control of some key aspects of your retirement strategy, including when you begin to claim Social Security benefits and how much you personally save for retirement.
Myth #4: The 4% rule works for everyone.
The 4% rule is a general rule of thumb for how much one can safely spend each year in retirement without running out of money. However, it’s based on certain assumptions, and the farther away those assumptions are from your own situation, the less valid the rule is for you.
While the rule offers a quick and easy way to assess whether your retirement spending goals are realistic, you should work with a financial advisor to model your unique situation — when you want to retire, how long you expect to live, how you want to invest, your spending patterns and income strategies — to determine if your withdrawals are sustainable.
Myth #5: You don’t need an estate strategy until you’re older*.
Everyone has an estate plan — it just may not be the one you want. By default, the laws of your state dictate who will care for your children, how to handle decisions for an incapacitated person and how assets will transfer after you pass if you don’t legally document your own wishes. Developing an estate strategy is not merely about wealth, and it shouldn’t be something you only think about later in life. It’s about putting you in control of your legacy and ensuring the most important people and things in your life are cared for as you intend should something happen to you. Additionally, having a strategy can help ensure your wishes are followed in an orderly and structured manner, reducing potential delays and conflicts that could arise among your beneficiaries.
Myth #6: I’m young, so I can wait to start saving.
When retirement is decades away, it can be tempting to put off saving for it. But the cost of waiting can be significant. For example, if you start saving $550 a month at age 30 and earn a 7% return, you’ll have about $990,000 at age 65. If you wait five years to get started, your portfolio will be worth about $670,000, and waiting 10 years will reduce your ending portfolio to just $445,000.** The earlier you start saving, the less you’ll have to put away each month to meet your retirement goals.
Myth #7: You have no control over your retirement savings.
When it comes to saving for retirement, three of the most impactful factors in how much you have for retirement are how long you save, how much you save and how much your investments earn. While you may think you have little control over the return, you actually control more than you think. You control how you have your money invested, and how much you have in cash or fixed income versus growth investments can greatly affect your return potential.
Myth #8: With retirement planning, it’s best to set it and forget it.
We all know life doesn’t always unfold as expected. That’s why it’s critical to not just plan for your goals, but also to prepare for unexpected events. But even with ample planning and preparation, you’ll likely need to remain flexible in retirement. Doing so can help you better navigate life’s curveballs and help ensure your money lasts through retirement.
Lean on an Edward Jones professional
The earlier you start executing your financial plan, the greater the chance of reaching your financial goals. Reach out to your financial advisor today and take control of your financial future.
Important information:
*Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.
**Hypothetical example for illustration purposes only and does not reflect an actual investment.