Retirement myths typically emerge from outdated or exaggerated information that is no longer accurate or applicable to retiring in the 21st century. The financial landscape surrounding retirement is no longer the linear path it once was, i.e., you worked at one place for 40 years and you retired with a healthy pension, substantial savings, and social security payments that easily supported you for another 20 years.
Three big differences separating retiring then and retiring now that make it more complicated to live comfortably after 65 are: we are living longer, job security no longer exists, and Social Security payments can no longer be expected to support you in your retirement years.
So don’t let these five retirement myths sabotage your ability to avoid financial worries after retirement:
Myth #1: You’ll just retire later or work part-time to make up for not investing or saving enough money for retirement.
A serious medical condition can strike you at any time, regardless of your current health status. You could be involved in an accident that permanently prevents you from working or your spouse may develop a chronic illness that requires your full-time attention. In fact, any number of unexpected occurrences could happen that turns this “plan” into a bust.
Never take the future for granted by believing you’ll be able to work past retirement to earn enough money to make up for lack of retirement funds. It may or may not happen as you expect it to happen.
Myth #2: As long as you put back 10 percent of your income each year, you’ll save enough for retirement.
This sounds pretty easy, doesn’t it? Unfortunately, the validity of this myth can only be supported if you start saving 10 percent of your annual income at age 18 and continue doing so without fail until you are 65. Even if you are a frugal person and begin stashing away several thousand dollars a year towards your retirement, this doesn’t mean that after ten years of working hard and watching every penny that your company won’t suddenly decide to reorganize and lay off hundreds of employees––including yourself.
In addition to unexpected unemployment, you could suffer an illness, Injury, loss of residence due to a natural disaster––anything could happen that prevents you from sticking to your 10 percent plan and enjoying a financially stable retirement.
Myth #3: Senior citizens can depend on monthly Social Security payments for partial retirement income.
Although talk of an insolvent Social Security Administration arises occasionally in the news, chances are the government won’t let it run out of money and it is likely to remain as it is for quite a while. However, amounts paid out by the SSA are subject to change, especially as more Boomers retire and the unemployment rate remains stagnant.
According to 2014 statistics provided by the Social Security Administration, 60 million Americans currently receive monthly social security payments. The average amount of these payments is approximately $1300–hardly enough for someone to live comfortably on.
Myth #4: Keeping money safely tucked away in bonds, savings accounts or CDs means it will always be there when you retire.
Playing it safe with your retirement plans doesn’t always translate into lucrative retirement savings. In fact, deciding not to invest as part of your retirement strategy could leave you dismayed and a little stressed when you look at your savings and realize you’ve gained little in regards to interest accrued.
Professional retirement planners strongly urge you start diversifying your investments in your 30s, although it is never too late to leave your comfort zone (savings accounts, CDs, etc) and look at different strategies to help build your nest egg.
Myth #5: Moving to a “retirement-friendly” state after retiring means you’ll benefit from a lower cost of living and no income taxes to pay.
States like Florida, Texas, South Dakota and Nevada all have reputations for being great places to live for retirees because they have no income tax. However, retirees who move to these states without further researching their cost of living rates often experience “sticker shock” after they discover all these states have higher-than-average sales and property taxes.
Necessities may cost more compared to where they previously live as well. For example, this cost of living calculator shows that someone moving from Columbus, OH to anywhere in Miami-Dade Country, FL will pay more for groceries (17 percent more than in Ohio), housing (a whopping 58 percent more!) and health care (8 percent more).
Retirement Planners Care About Making Your Retirement Years as Financially Stable as Possible
Consult an experienced and knowledgeable retirement planner to manage your portfolio so that you can get the most out of your retirement nest egg.
Disclosure: For informational and educational purposes only. The information contained herein may contain information that is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor.
DeWitt & Dunn does not provide tax/legal advice. Please consult with the appropriate professional.
Not associated with or endorsed by the Social Security Administration or any other government agency.