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3 common retirement myths busted

I recently covered what for many people is a key retirement myth — that you can survive on the State Pension alone. Here are three other myths that frequently send people on the wrong path.

I’ll need less money when I’m retired

You may well need to spend less on certain things, like commuting and other work-related costs. But do you really think having a whole load more leisure hours to fill with all those things you never had time to do when you were working will need less money rather than more? That’s true if all you intend to do is sit around the house watching the telly. But don’t you want more than that?

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Most retired folk I know are fitting hobbies and interests into their hours. Off the top of my head, I can think of one friend who’s restarting his model railway interest (and investing a fair bit more money into it), one who’s doing a lot more fishing (which costs more in tickets, travel, baits, and equipment) and one who’s enjoying putting spare cash into animal welfare.

For me, I want to continue with my love of travel. And even though I approach it with a very modest budget, spending more days on the road will require more than my State Pension.

I don’t need to worry about retirement until I’m older

The first idiot I ever heard this one from was… me. It was 1984, I’d moved on from my first job and had the option of transferring my modest pension contributions or taking the cash. I’d never had much to spend, so I took the cash. It was around £1,000, and I’ve long forgotten what I spent it on.

But supposed I’d left it invested for my retirement, and been able to achieve an average 6% annual return (which seems about right for the long-term UK stock market). Today, 35 years on, that grand would have grown into approximately £7,700. And if I’d managed 8%, I’d have almost doubled that to £14,800.

The thing is, thanks to the miracle of compounding, money invested early ends up being worth a lot more than money invested later — and a decade of investing when you’re in your 20s can grow to a much bigger sum than a decade of doing the same in your 40s.

It’s too late to make any difference

When faced with the potential consequences of not having thought about their retirement when they were younger and could have been stashing away modest sums every month to grow into a handsome retirement pot, some just throw up their hands and think “It’s too late to do anything now.”

Well, it isn’t. It’s never too late. While a decade of investing later in life might not achieve the same as an earlier decade, it can still add a significant amount to your retirement funds.

Got 10 years to go before you plan to retire? Can you afford to cut back on your daily expenditure now and invest £500 of your monthly income in shares? £500 per month invested at an annual return of 6% would grow to more than £80,000 in 10 years, and wouldn’t you like to have that as a retirement bonus?

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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.