Seven Retirement Myths to Avoid
There are many factors in planning for retirement and it would take a book to explore them all. But let’s go over some common retirement planning myths.
Retirement Planning Myth #1- It will be easier to wait and save when I earn more
The problem with this statement is that saving for retirement is a habit we must form. Delaying your savings habit will likely result in little to no savings at all…where most Americans find themselves when they retire.
You make think it will be easier to save for retirement when you are older but you are assuming you will earn more and have no more expense. Just think of the incredible rise in health care expenses in the past 20 years. Do you think it will not increase in the next 20? Remember that people are living longer than in the past and you have to plan for that.
Start saving now even if it is just a small amount from every paycheck. If you deduct that amount before you spend you will be surprised that you don’t “miss it”. Money compounds or grows faster over time so a little can become a lot over a 30–40 year period.
You have heard the phrase “time is money”. Guess What? It is true! Waiting to save will cost you money, lots of it. So, start your savings now.
Retirement Planning Myth #2 - My old employer or the Government will take care of me
Well, if you haven’t heard the news, Social Security will run out of funds in less than 20 years. Although it will likely be funded in the future it is very likely that it will start paying later in life and perhaps less at initial retirement age. Most people cannot live on social security alone. Old employer pension plans are also not in stone. There are numerous instances where pension plans have gone broke and thousands of former employees have lost their pensions. Pension plans have declined by 70% in recent times (U.S. Dept. of Labor).
You should only rely on your retirement from one source: YOU
If you have a government pension plan, then you are probably pretty safe. Many are underfunded but the risk is still low.
Retirement Planning Myth #3 - My Inheritance will be my retirement
Did you know that less than 2% of all people receive an inheritance of at least $100,000?
That’s right, even in the best circumstances very few people will receive an inheritance that is large enough to actually retire on. $100,000 is not even close to enough for most retirees over even a short amount of time. And, you can’t even count on that because the person providing the inheritance may live longer than you think and need a lot of their saved money for health and care expenses in these latter years. They may also have poor investments that are going south and declining in value.
Last, the will may not be evenly divided, or a portion may be designated for charitable contributions. You just don’t know, and you can’t count on what you don’t know.
Retirement Planning Myth #4 - My former employer or Medicare will pay my medical expenses during retirement.
A recent study shows that as of 2009 only 29% of employers were still providing retirement medical insurance and this number is continuing to drop dramatically. So, you cannot count on a former employer covering any future medical expenses. It is believed the percent is already down to 13% and still dropping. Most corporations, even the largest, have openly stated they plan to cut these benefits in the near future due to their cost.
The truth is you are really on your own for health insurance.
So, what about Medicare?
As we noted previously, the cost of health care expenses has risen dramatically and there is no end in sight. We must plan that future health care costs will continue to rise.
Instead, you will have to plan to have supplemental insurance knowing that the cost to have it will also increase over time.
Retirement Planning Myth #5 - All I need is 70% of my pre-retirement income
I wish this were true, but it is not. It is a complex issue because each person may have a different vision of their retirement and what they will be doing as well as when they will fully retire.
More than half of current retirees spend 95% of their pre-retirement income during their retirement. Are you one of these? Statistics say you probably are.
You will decrease some spending as you age just due to the fact you cannot maintain the same activity levels as when you were younger. But you will also have those higher medical expenses.
You can expect spending during retirement to decrease over time as your age increases because of diminished activity and consumption levels with aging.
Retirement Planning Myth #6 - Put your money in bonds and CDs because they are “safe”
This used to make some sense years ago because life expectancy was much shorter than today. But you may be living 10-20 years longer than your parents or grandparents did.
If there is basic inflation of only 3% then your purchasing power really drops over a 20 year period. All this means is your retirement savings is worth a lot less in this same time span.
So, you need to find ways to grow your nest egg on a more continual basis.
You really have no choice but to have a less traditional investment portfolio managed by a professional, so you don’t outlive your retirement savings.
Retirement Planning Myth #7 - I will retire at age 65 and quit working entirely
This is a really old concept that no longer works. We are living longer and many people work longer as a result. Some from necessity and others because they don’t want to sit around for 20+ years. Most of us want to stay active as long as we can.
Each person may have a different retirement age. Retirement should have an objective of creating a long term, happy life. Your money is just a way to support your retirement lifestyle.
Plan to retire when you want to. You may decide to work part-time or become involved in other activities. But, no matter what, start planning and acting now for your future!
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