Eight Biggest Financial Planning Myths: How Many Do You Believe?
“You need money to create a financial plan.”
“Social Security is going bankrupt!”
“You should always follow the 4% rule when saving for retirement.”
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These and other common financial planning myths are widely held, but they don’t always stand up to scrutiny. Sure, the 4% rule may work for some people, but it’s not the only option. Yes, Social Security is struggling, but it will not fall off a cliff and stop funding your retirement.
It’s easy to get caught up in retirement financial planning myths, but doing so can be costly if it affects how you save, invest and plan for the future.
Take, for example, the person who thinks they don’t have enough money to meet with a financial adviser. They could miss out on guidance that could help them better prepare for retirement.
With so many misconceptions floating around, we’ve identified the most common ones and debunked them for you.
Eight Financial Planning Myths Debunked
Myth 1: Everyone should follow the 4% rule
The 4% rule has been around since the mid-90s and is a popular retirement savings strategy, even today. It suggests retirees can withdraw 4% of their total retirement savings every year, adjusting for inflation, and their retirement dollars should last roughly 30 years.
Proponents like it because it’s a simple rule and provides retirees with a consistent and predictable stream of income in retirement.
The truth: The 4% rule is more of a guideline than a hard-and-fast rule. It doesn’t account for an individual’s unique circumstances, market fluctuations or personal spending habits.
Why it’s wrong: Critics argue it’s too rigid, ignoring factors like taxes, fees and the potential financial impact of unexpected expenses, such as long-term care.
“The biggest myth is that you should follow it. It’s a rule of thumb if you want a rough gauge,” says Sharon Carson, executive director of J.P. Morgan Asset Management. “If you blindly follow it, in most cases, you end up with a lot more money. Great if your legacy was your goal, but you could have a better lifestyle with more flexibility.”
To get a more accurate idea of your spending needs in retirement, Carson suggests using one of the many free retirement planning calculators available online or seeking help from a financial adviser. Either option will give you a customized plan that takes into account your unique financial situation.
Myth 2: Social Security is bankrupt
Many Americans rely on Social Security to supplement their income, and about three in four think it will run out of money, according to a Nationwide survey. They may not think it will happen today, but in their lifetime.
The truth: It’s true that the trust fund underpinning Social Security is in trouble, since more older workers are drawing down funds and fewer young workers are paying into the system. According to the Social Security Administration, the program is fully funded through 2035 (or 2023 by some accounts). After that, if no changes are made to secure more revenue, retirees will receive about 83% of their benefits. To make up the shortfall, the SSA will need to increase revenue and/or trim benefits.
Why it’s wrong: The fear that Social Security is going bankrupt may push some people on the verge of retirement to start collecting benefits early. But doing so would result in a reduction of up to 30% in their monthly payments, since you can generally get a bigger benefit if you delay Social Security.
“While changes will need to be made to ensure its long-term viability, we believe Social Security will likely remain an important part of an individual’s retirement income strategy,” says Katherine Tierney, senior retirement strategist at Edward Jones.
“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 3: Cash is king
In times of uncertainty, many people liquidate their holdings and move to cash. They may put it in CDs, bonds, or even gold. They are betting it’s safer than being beholden to the whims of the stock market.
The truth: It’s OK to have a portion of your portfolio in cash, but not all of it. Retirement can last 30+ years, which means your assets need to continue to grow. How are you going to do that if it’s stashed under the mattress?
Why it’s wrong: A portfolio of all cash and bonds won’t be able to keep up with inflation over a thirty-year retirement or with rising healthcare costs. It’s better to have money spread out in stocks, cash and bonds.
“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,” says Tierney. “Having too much in cash can prevent you from reaching your long-term goals.”
Myth 4: Long-term care insurance or nothing
Nobody wants to be a burden in old age, so they turn to insurance for protection, thinking it’s the only option. It makes sense, long-term care is expensive and footing the bill outright is a non-starter for lots of people.
The truth: While insurance may be an option to cover some of your long-term care costs, annuities, home equity loans, the sale of your house and tapping savings are alternatives. Be open and flexible when deciding how to pay for long-term care.
“It could have been that you had a big travel budget for most of your retirement and now you need long term care but you don’t need a travel budget,” says J.P. Morgan’s Carson. “Or you might be able to use your house you got paid off to afford assisted living. There’s no one silver bullet.”
Why it’s wrong: Long-term care insurance is expensive and depending on how many years you require care you may need a lot of coverage.
According to an American Association for Long Term Care Insurance study, a single male aged 60 pays an annual premium of $1,175 for $165,000 in benefits, while a female pays $1,900. That would get you a year-and-a-half of coverage. Add inflation protection of 2% to the mix and the premiums increase to $2,000 for a male and $3,300 for a female. The more inflation protection, the costlier it is.
Myth 5: Financial plans are for rich people
Whether you’re saving for a home or retirement, a financial plan is the blueprint to get you there. Nonetheless, many Americans don’t have a will, let alone a financial plan.
A recent Charles Schwab Modern Wealth survey demonstrates that. Only 36% of Americans have a written financial plan, according to Schwab’s report.
The truth: Anyone can benefit from a financial plan, whether they do it on their own or hire a financial adviser.
A fee-only financial adviser gets paid for his or her advice. Rates range from $200 to $400 an hour and one-time plans range from $1,000 to $3,000. If you do happen to be fairly wealthy, you may decide to use an adviser who charges a percentage of all of the assets they manage for you, usually 1%.
“A financial plan can help you build wealth by defining your goals and identifying appropriate steps you can take to help achieve them,” says Tierney.
Why it’s wrong: Without a plan, you could end up making costly mistakes, reacting emotionally to movements in the market, and paying more in fees and taxes than you have to.
Myth 6: Estate planning doesn’t apply to me
Estate planning, including drafting a will, is one of those things people put on the backburner. They figure they have years to worry about that or their assets aren’t complicated enough to need one.
For others, it’s an expense they can’t afford. At last check, only 24% of adults in America have a will, according to Caring.com.
The truth: We all hope to live a long and healthy life, but sadly, the unexpected can happen. That’s why you need to make a will, even if you have limited assets. Your will can include jewelry, antiques or items that have sentimental value. (But don’t include things like business interests, guns or other problematic items in your will.)
According to LegalZoom, you can DIY your will for free, pay between $10 and $250 for an online service, or hire an attorney for an average of $300 to $1,000.
“Many people’s default position is that there’s no need to take action or plan because they don’t think their finances have much complexity,” says Jeremiah Barlow, executive vice president and head of wealth solutions for Mercer Advisors.
Why it’s wrong: If you die without a will, the courts make all the decisions about your property and assets. Probate proceedings can get hung up for years, depriving your heirs of the assets you intended for them.
Myth 7: I can set my financial plan and forget it
A common mindset among investors and savers is that once they create a financial plan, they’re done. They think if they set it and forget it, their balances will automatically go up, not taking into account the impact of life circumstances.
The truth: Life is dynamic, and what worked when you created your financial plan may not work today. You may get married, have a baby or get a raise, all of which impact your finances, goals and plan.
Financial plans should be subject to a regular review, particularly when things in your life change.
Why it’s wrong: If you set it and forget it, your portfolio may veer off course.
“Your life circumstances change, tax laws are regularly updated, investment maximums and minimums change over time, investment options change and even your own tax brackets adjust over time,” says Barlow. “A good financial plan is a marvelous living and breathing thing that needs to evolve over time.”
Myth 8: You can switch in and out of a Medicare Advantage plan whenever you want
Medicare Advantage plans are popular with retirees because they tend to offer more coverage than Medicare. For instance, many Medicare Advantage plans offer dental, vision and hearing exams, which are not covered under original Medicare Parts A and B. If they change their mind about the plan, no problem. They assume they can switch to a new plan or go back to original Medicare and a Medigap plan.
The truth: Unlike auto insurance or homeowners insurance, you can’t switch your Medicare Advantage plan on the fly. You can only switch plans during open enrollment, which for 2025 was between January 1 and March 31.
The same goes for switching from a Medicare Advantage plan to a Medigap plan. You can do it during the annual Medicare open enrollment period, which runs between October 15 and December 7, but outside of that, you have to wait. There is a 12-month trial period in which you can switch out of a Medicare Advantage plan if you joined a Medicare Advantage plan when you turned 65 and became eligible for Medicare Part A.
Why it’s wrong: “You can go from Medicare Advantage to an original Medicare plan, but you may not get the Medigap plan,” says Carson. “Medigap plans underwrite you and may be denied coverage for a preexisting condition. You really have to think about what kind of coverage you want right from the start when you pick original Medicare or Medicare Advantage.”
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