RETIREMENT ADVISOR

Allison Schrager

Most people are probably thinking about retirement all wrong , and they ’ re probably better off than they think .

HATEVER YOU ’ VE BEEN TOLD ABOUT YOUR REtirement , odds are that it ’ s wrong . Saving enough for your retirement , and investing the right way , are truly among the hardest of all financial problems . In many ways , it ’ s more difficult than running a large endowment or hedge fund — and yet we all must do it .

The challenge is to make your money last a lifetime while facing uncertainty about the future of markets , your income , your health and your longevity . Meanwhile , all the misinformation and bad advice out there makes retirement finance harder than it needs to be . In an effort to make things a little easier — and with full knowledge that one column can do only so much — here are three myths about retirement .

Myth No . 1 : The Goal Of Retirement Finance Is To Maximize The Return Of Your Portfolio .

The idea of maximizing returns is the original sin of retirement investing . I blame the evolution of wealth management . For many years , most Americans did not invest in financial markets . In 1962 , only about 23 % of U . S . households owned stock , and most tended to be very rich . Their goal was to keep their pile of money as big as possible . There were pension funds that invested for retirement , but they did so on behalf of many people of different ages , so they had more scope to diversify .

For many years , most Americans did not invest in financial markets . In 1962 , only about 23 % of U . S . households owned stock , and most tended to be very rich .

But then people started living longer and wanted to be less dependent on their families , while defined benefit pensions were largely replaced by individual accounts . Suddenly ( over a few decades ), a majority of households had to invest for their own retirement . And the same strategies and conventional wisdom given to rich investors were applied to middle-class retirement investors .

That was a mistake . If you just need to maintain a big pot of money , then returns on any given day , month or year do matter . If you are financing an income stream that needs to continue decades into the future , a different investing strategy — and way of judging performance — are required . You are essentially preparing to buy a 20-year inflation-indexed bond , and its value depends on both future long-term interest rates and asset returns .

But people tend to judge performance on returns only on a given day . As a result , they are too focused on the short term and their account balance , when they should be thinking about the income their assets will one day provide . The result is many savers have no idea how much money they can spend in retirement .

The industry has gotten better since the 1980s and ’ 90s , when retirement accounts became popular . Today a popular strategy is to buy target-date funds , which move portfolios into bonds as investors approach retirement . But even a target-date fund ’ s objective is maintaining

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