5 Retirement Myths That Could Ruin Your Plans

Retirement planning is tricky. Get it wrong and you could end up with insufficient income, struggling to make ends meet or even worse, running out of money altogether. Get it right, on the other hand, and you could enjoy a comfortable retirement, with plenty of money to cover your costs and maybe even a little left over for the odd luxury.

The trouble is, there are so many myths and misunderstandings about retirement planning that it can be hard to know what to believe. Here are five of the most common retirement myths – and why you should ignore them.

Myth 1: You don't need to start saving for retirement until you're in your 30s or 40s

Wrong. The sooner you start saving into a pension, the better. That's because your pension benefits will be boosted by something called compound interest. This is the interest you earn on your savings, plus the interest on the interest you've already earned – and it can really add up over time.

To give you an idea of how much of a difference compound interest can make, imagine you start saving £200 a month into a pension at the age of 30. Assuming an annual return of 5%, you'd have a pension pot of around £1 million by the time you reach retirement age. If you wait until you're 40 to start saving, you'd need to put away £400 a month to achieve the same result.

Myth 2: You don't need to worry about saving for retirement if you have a defined benefit (final salary) pension

Defined benefit pensions are certainly very valuable, but they're not always as generous as people think. For a start, the benefits are usually based on your salary at the time you retire, rather than your highest ever salary. So, if you take your pension at age 60, it will be based on your salary at that age, rather than what you were earning in your 40s or 50s when you were at the peak of your career.

In addition, many final salary pension schemes have closed to new members, so you may not have one at all. Even if you do have a final salary pension, it's still a good idea to make additional pension provision, either through a personal pension or your workplace pension scheme.

Myth 3: You don't need to worry about saving for retirement if you own your own home

Owning your own home is certainly a valuable asset, but it's not always the retirement goldmine that people think it is. For a start, you'll need to find somewhere else to live if you want to downsize – and you may not get as much for your property as you hope. In addition, you'll still need to find the money to pay for things like repairs and maintenance.

What's more, your home is not a liquid asset, which means you can't easily access the money you've tied up in it. So, if you need to cover an unexpected expense in retirement, you may need to sell your home or take out a equity release loan, which could reduce the inheritance you're able to leave to your children or grandchildren.

Myth 4: You don't need to worry about saving for retirement if you have a good state pension

The state pension is certainly a valuable source of retirement income, but it's not as generous as many people think. The full state pension is currently £168.60 per week, which is just over £8,700 a year. For most people, that's not going to be enough to live on, especially if they have a comfortable lifestyle.

What's more, the state pension is not inflation-proofed, which means the value of your benefits will gradually decline over time. And, of course, you may not even get the full state pension, as it's only payable if you have at least 30 years' worth of National Insurance contributions.

Myth 5: You don't need to worry about saving for retirement if you have generous workplace pension

Your workplace pension is certainly a valuable source of retirement income, but it's not always as generous as you might think. For a start, the benefits are usually