You’ve probably heard some retirement myths, or read them online. While quick-fix retirement myths can be tempting, it’s important to evaluate their accuracy relative to your personal finances. Furthermore, many retirement myths are decades old, when lifestyles and retirement were far different than today.
Whether you’re a Millennial just starting out, an individual at the height of your career, or you’ve already retired, it’s vital to make the most of your retirement savings. This begins with establishing a personalized retirement plan – and reconsidering the validity of the following retirement myths.
1) My Costs Will Decrease In Retirement
Your outgoings may no longer include job-related costs like commuter expenses, but costs typically increase during retirement. With extra time on your hands, you’re more apt to spend on travel and activities. Later in retirement, your spending may shift to cover outsourced services and medical costs. Your retirement finances should be flexible to support your ever-changing lifestyle.
2) Medicare Will Pay All My Medical Costs, Including Long-Term Care
Medicare only covers some services for free. Unless you qualify for Medicaid, you’ll need to budget for co-pays, deductibles, and other healthcare expenses in retirement, or purchase additional insurance. Similarly, many people mistakenly believe that Medicare pays for long-term care. In fact, it provides some coverage – but only for specific services. With rapidly increasing care costs and longer average lifespans, the odds of needing long-term care are high. Purchasing a long-term care insurance policy might be a wise investment.
3) Social Security Is My Retirement Back-up Plan
The latest report by the Social Security Board of Trustees suggests that Social Security won’t continue in its current form beyond 2034. Future retirement benefits may be further taxed, means-tested, or otherwise reduced. If you’re under 50 years old, this should be a key planning consideration.
4) I Should Apply For Social Security As Soon As Possible
Around half of all Americans begin retirement benefits at age 62. However, delaying payments results in higher monthly benefit amounts. SageVest Wealth Management can help determine your break-even point i.e., the age at which delaying your benefits becomes more advantageous. Other life factors like continuing employment, family health history, and entitlement under a spouse or ex-spouse’s Social Security record also affect this decision.
5) My Taxes Will Decrease In Retirement
While your tax burden might be alleviated of Social Security and Medicare taxes, it might not actually change that much upon retirement. Some states exempt pension and Social Security payments, but they’re still largely subject to Federal taxation. Another significant tax factor is how much of your savings lie in qualified retirement plans e.g. IRAs, 401(k), 403(b), and TSP accounts. Withdrawals from these accounts are generally fully taxed as ordinary income. Your taxable burden only substantially reduces if a large portion of your retirement income derives from non-qualified savings (traditional investment accounts).
6) A Million Dollars Is Plenty For Retirement
There’s no hard-and-fast rule of how much to save for retirement. If you’re used to living frugally, $1 million may be plenty to live on, but if you enjoy a more affluent lifestyle, it might prove inadequate. Likewise, a retirement income representing a specific fraction of your current salary may or may not be sufficient. Wealth means different things to different people, and personal finance is just that: personal.
7) A 4% Withdrawal Rate Will Ensure My Retirement Savings Last 30 Years
Recent studies have proven this retirement benchmark could be untrue in certain economic conditions e.g., market downturns and low interest rate environments. It could also fail to account for early retirement, or increased longevity. For women, you’re likely to live longer, yet may have fewer retirement savings due to lower pay rates and/or career breaks to care for loved ones. Careful planning becomes essential, to stretch your retirement dollars over a longer period.
8) A Conservative Asset Allocation Is Best For Retirement
One historical approach to investment positioning was simply subtracting your age from 100 to calculate the percentage of assets to hold in stocks at any given age. Nowadays, people are living longer, meaning that your retirement assets must sustain over a longer time frame. Furthermore, interest rates are hovering just above all-time lows, making it challenging to live off investment income alone. Today’s investment decisions require a more thoughtful and comprehensive approach.
9) I Plan To Continue Working In Retirement
Working beyond the traditional retirement age of 65 offers both health and wealth benefits. However, fewer than half of those who plan to delay retirement actually achieve that goal, due to health considerations, employment changes, or other reasons. Carefully assess the feasibility of continuing your employment, including working part-time during retirement.
10) I Plan To Stay In My Own Home
While you may anticipate staying in your own home during retirement, there are many factors involved in successfully aging in place. Some can be anticipated e.g., universal design adaptations to prepare your home for the future. Others, like your health, are less predictable. Your retirement plan must include a range of ‘what-if’ scenarios to ensure maximum flexibility.
Whatever your age, your retirement plans are fundamental to your future financial well-being. As such, they should be founded on diligent saving, sound investment principles, and continued wealth management, not on internet advice or retirement myths.
SageVest Wealth Management works with you to define your unique retirement goals and implement ongoing investment strategies that support those objectives, with the ultimate aim being the happy and successful retirement you deserve. Please contact us to find out about our customized, dynamic retirement planning services.