Whatever you’ve been told about your retirement, odds are that it’s wrong. Saving enough for your retirement, and investing the right way, are truly among the hardest of all financial problems. In many ways, it’s more difficult than running a large endowment or hedge fund — and yet we all must do it.

The challenge is to make your money last a lifetime while facing uncertainty about the future of markets, your income, your health and your longevity. Meanwhile, all the misinformation and bad advice out there makes retirement finance harder than it needs to be. In an effort to make things a little easier — and with full knowledge that one column can do only so much — here are three myths about retirement.

Myth No. 1: The goal of retirement finance is to maximize the return of your portfolio.
The idea of maximizing returns is the original sin of retirement investing. I blame the evolution of wealth management. For many years, most Americans did not invest in financial markets. In 1962, only about 23% of US households owned stock, and most tended to be very rich. Their goal was to keep their pile of money as big as possible. There were pension funds that invested for retirement, but they did so on behalf of many people of different ages, so they had more scope to diversify.

But then people started living longer and wanted to be less dependent on their families, while defined benefit pensions were largely replaced by individual accounts. Suddenly (over a few decades), a majority of households had to invest for their own retirement. And the same strategies and conventional wisdom given to rich investors were applied to middle-class retirement investors.

That was a mistake. If you just need to maintain a big pot of money, then returns on any given day, month or year do matter. If you are financing an income stream that needs to continue decades into the future, a different investing strategy — and way of judging performance — are required. You are essentially preparing to buy a 20-year inflation-indexed bond, and its value depends on both future long-term interest rates and asset returns.

But people tend to judge performance on returns only on a given day. As a result, they are too focused on the short term and their account balance, when they should be thinking about the income their assets will one day provide. The result is many savers have no idea how much money they can spend in retirement.

The industry has gotten better since the 1980s and ‘90s, when retirement accounts became popular. Today a popular strategy is to buy target-date funds, which move portfolios into bonds as investors approach retirement. But even a target-date fund’s objective is maintaining a certain wealth level, and there’s no strategy to help people spend in retirement. It is a step in the right direction — but not enough to overcome the original sin.

Myth No. 2: A retirement crisis is inevitable because most people have not saved enough.
The fact that there aren’t good ways to measure or invest for retirement income has created confusion and insecurity about how much money people need to retire. A majority of people think they don’t have enough to live comfortably. Obviously it would be better if everyone saved more, and lots of people don’t have enough to retire the way they’d like. But compared to previous generations, most Americans will be better off in retirement, income-wise.

True, defined-benefit pensions used to be more common and were more generous. But even in their heyday, most people didn’t have them. Individual accounts are cheaper to offer and regulation encourages them, and the result that is more people have retirement savings and exposure to the stock market.

This may explain why people are able to spend more in retirement than previous generations. Many retirees are also in better health and have more and better options for part-time flexible work. The bottom line is that today’s retirees have a better standard of living than previous generations did.

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