Oppenheimer Funds and Money magazine (10/94) did a study on retirement and came up with the following comments. They discovered that based on current savings and investment rates, nearly eight out of ten households will probably have less than half of the annual income they will need to retire comfortably on. There were several myths that were identified of participant's investment outlook for retirement.

1. "When investing for retirement, I should go with the lowest risk investment I can find". Their survey found that almost half of pre retirees think they should take less risk with their retirement assets than with other investments. My comment- while it is true that one might consider less risky assets as they get closer to retirement, pre retirees need to recognize that the historical returns for bonds and cash are dismal at best. Only more aggressive investments- such as stock- can hope to provide the growth necessary to build up he retirement kitty adequately. (Requires constant monitoring however)

2. "Real Estate investments will provide the highest return over the next 25 years." Housing was seen as the second most attractive investment behind stocks. My comment- real estate did exceptionally well in the 70's and early 80's. But the economic cycle for housing- particularly in conjunction with a significantly lower inflation rate and an older society- probably means that real estate is not going to do better than inflation overall. And if that is only 3% or 4%, that won't provide what is needed. In fact for the past 10 years from 1/1/84 to 12/31/93, residential housing grew at a 4.4% average annualized rate while the S&P 500 index did about 15% (though over a 50 year period it has done about 10%).

3. "Bonds outperform stocks and are therefore a better investments" Almost 1/2 of respondents thought bonds frequently outperformed stocks. My comment- during the mid 80's to 1993, the lowering of interest rates did provide some significant returns in bonds and at a lower risk as well. But the odds of that happening again are slim. Historically and statistically, bonds do NOT outproduce stocks over any significant period of time- though in short, specific time frames, it has happened.

4. "Most stock market investors get wiped out at least once in their lifetime". About half the respondents believe that stock market investors get wiped out at some point in time. My comment- sure it can happen, but about the only way that is possible is by owning a single issue of stock that goes bankrupt. Any reasonably educated investor uses diversification (at least 13 issues) and asset allocation to limit the downside risk. And if you recognize some basic investment technique and pay attention to economics, losing more than 10% in a bad time overall shouldn't ever happen. Further, since 1943, there is no 20 year period where stock have showed a negative return.

5. "It's not important to have a globally diversified investment portfolio". Only 34% of pre retirees thought it important to put some of their holdings in international stocks and bonds. My comment- any major teaching in asset allocation talks about reducing risk overall by using non correlated or randomly correlated issues to offset risk, yet with retaining opportunity for return. International stock investments provide such correlation and potential growth. It might also be possible to use international bonds, but with relatively flat returns, any return can be eroded by currency exchange. I think international bonds should be used sparingly.

6. "I can collect full social security benefits at age 65" More than 2/3 thought they would get full benefits at age 65. My comment- if you are approaching age 65 in the very near future, that is an acceptable statement. However, Congress has changed the age for full benefits of younger employees to 66, 67, etc. It would not be surprising to find other changes in the near future to push the age to 70. People are living longer and healthier and are still capable to participate in the work force. Further, social security simply does not have the funds to make all those additional payments anyway.

7. "I'm not going to need that much money to retire comfortably". More than 2/3 of pre retirees thought they could live comfortably on 60% or less of pre retirement income. My comment- I never used these rules of thumbs since each person, family and budget is totally unique (different manuals have the budget from 50% to 90% of current spending). The only way to objectively determine what you might need is through a very concise budget. I have made up one which is the most complete of anything I have ever seen.

8. "I won't have to support my parents or children after I retire." Most agreed with that statement, but 36% thought they might have to support their children in retirement and 27% thought they might have to support their parents. My comment- children- even those with college educations- have found getting a job to be much harder and many have returned to the parent's nest since it's the only way they can survive. But the real problem is that many elderly parents are moving back in with their children. This will even become a major political issue in the future as the U.S. becomes older.

9. "Inflation is under control so I'm better off with safe investments like CD's or money market funds." Investors still do not comprehend how inflation will erode their purchasing power. 58% of respondents had NO idea how long a 4% inflation would take to cut their purchasing power in half (do you know?). My comment- even with lower inflation, you still need to consider taxes which will reduce the return of CD and money market funds considerably. Only more aggressive and growth oriented investments can stave off the effects of inflation and taxes.

10. "In the end, how well I retire depends mostly on luck". My comment- how long you might live may depend somewhat on luck, but how well you live during retirement is determined by how much effort- mentally and physically- you put into life in the earlier years. Learning about investments (and living for that matter) and how to use them properly is NOT luck.

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