Bob Gerstemeier - Planning Your Retirement: A Practical Guide for Turning Your Dreams Into Reality

When we think of retirement, many of us remember what it was like for our parents or grandparents. They probably worked most of their lives for the same company, and when they reached retirement, that company continued to take care of them in the form of a pension. The company had a board of directors who would decide how much to save and how to invest the pension fund in a way to produce a steady stream of income for the companys retired workers.

That world is mostly a thing of the past. Today, each of us is responsible for our retirement. We not only need to save up for retirement, but we also must figure out how to invest those savings so they will last the rest of our lives. While many companies will match whatever you save in your 401(k) retirement account (up to a point, of course), the trustees of the retirement plan who used to take care of the investments for you now just decide which investments to put into the companys 401(k) lineup of choices. Its up to you to determine how much to save and where to put that money, both before you retire and after.

Some of the most important decisions of your life are centered on taking care of your retirement. In a sense, you are at sea in a boat all by yourself, and you have to plot your own course. You have to know what direction to sail in and how long it will take to get to your destination. You have to learn how to forecast the weather and gauge the wind. Most importantly, you have to manage all those little disruptions that arise during the tripthe unexpected squalls, the occasional rough seas, and the doldrums, when there is no wind to help you, and it feels like youre going nowhere.

Retirement in the United States changed forever when Congress passed the Revenue Act of 1978, which created the first 401(k) plans. Two years later, the IRS gave employees a tax - free way to use salary deductions to fund their 401(k) plans. People loved this. They could transfer money from their gross pay to a retirement account and not have to pay any taxes on the income until years later when they retired and started withdrawing the funds.

Companies also loved 401(k) plans, which were cheaper and more predictable than defined benefit pension plans. Within a few years of the Revenue Act, many large companies switched from offering pension plans to making contributions to their employees 401(k) plans.

The US Department of Labor watched as that trend accelerated over the next several years. In 1980, for example, nearly a third of all Americans still had a defined benefit pension plan for their retirement and only one in twenty had one of the new 401(k) accounts. By 2010, the Department of Labor found that only about 2 percent of Americans had pensions and more than a third had a 401(k) plan as their primary source of funds for retirement. Nearly 80 percent of all US residents worked for an employer who offered a 401(k) plan. In just thirty years, the retirement landscape had changed dramatically.

The result is that today, if youre fifty - five or so and have been saving for retirement throughout your career, you must decide how to invest those savings so that you have a steady income that covers all your needs after you leave the workforce. Retirement used to be simple: work hard for thirty or forty years, then pick up your gold watch and collect your pension check every month. Now, even in retirement, your work isnt over. You still face difficult questions about how to nurture your nest egg so that it will continue to provide for you over the next thirty years or so.

Thats a tall order!

To make matters even more challenging, many prospective retirees leave the workforce believing a number of myths about retirement. Lets take a look at some of those mistaken beliefs.