It’s hard to develop strategies for retirement, and it gets even harder when you’re operating with information that is incorrect. With that in mind, let’s take a look at four common retirement myths, and why you should beware of them on your path to retirement.
Myth #1: You can wait a few more years until you start saving for retirement.
When you’re in your 20s, its’ easy to push retirement until later on. Things like starting a career, getting a new car, paying off loans from college or saving up for a house – isn’t an excuse to put off planning.
The earlier that you can get into the habit of saving for retirement, the better off you will be in the future. This gives your savings time to compound and grow. For some, the plan is to first pay off their mortgage, then help the kids with college costs and then, finally, save for retirement. Also, life expectancies are longer today than in the past so you may need a bigger nest egg to last from retirement through the rest of your life.
The longer that you wait to start saving, the more you will have to make up for down the road, which could make reaching your goal significantly harder. Ultimately, it’s best to start building your retirement early, even though it may be harder to save.
Myth #2: Your company or the government will take care of your retirement.
In the past, retirement income was commonly compared to a three-legged stool — one part came from Social Security, another part came from company pensions, and a third part was from personal retirement savings.
Today, the same cannot be said. Pensions are less common than they were in the past, having been replaced by a hybrid of pensions and savings called defined contribution plans. At the same time, the funds for the Social Security program have been steadily dwindling. What was a three-legged stool for previous generations is now a somewhat wobbly two-legged stool.
In fact, in 2034, just 15 short years away, the Social Security trust fund is expected to be depleted, according to the Social Security Administration’s summary of the 2018 annual reports. That means that in order to work toward the retirement of your dreams, you may have to be sure that your other assets make up for the less-than-ideal benefit you may receive from Social Security.
Your Social Security benefit may be a nice supplement to have, but should not be counted on as the only piece of your retirement income.
Myth #3: Medicare will meet all your healthcare needs. Medicare may likely be one part of your healthcare coverage, and for some people it may meet the majority of their needs. But many older retirees may suffer from serious medical conditions, and Medicare may not provide the comprehensive coverage you think it does.
For instance, you may have to pick up some prescription costs on your own; pay premiums and coinsurance expenses; and pay out-of-pocket for care that isn’t covered, such as long-term care in a nursing home. You may need additional funds for healthcare, which could come in the form of long-term-care insurance or a health savings account.
Each of these options — and even Medicare itself — may come at a cost to you. You should consult with a Medicare broker with questions about the costs that may lie ahead for you and to help you enroll in Medicare.
Myth #4: Retirement means you no longer have to work. While it may be your goal to stop working altogether in retirement, that may not end up being the case. Retirement has changed and it doesn’t always follow the model many of us envision: Traditional full-time work immediately becomes full-time leisure.
In order to make up for their retirement income gap, some retirees are choosing to do a few things:
• Phase their retirement, or gradually leave the workforce • Choose second careers • Do part-time work to make money on the side
That’s not the only reason retirees are returning to the work force, either. With longer life expectancies, some retirees are even finding that they may spend nearly as much time in retirement as they did in their career. For some of them, retirement is best while striking a balance between work and leisure.
These are just a few of the myths that can misguide you about what to expect in retirement. Working with Penny Lane Financial can help ensure you have the information you need to make informed decisions on your path to retirement.