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There is a lot of retirement advice out there.
Some of it is even good.
But for average folks, what are some of the most common myths about retirement that deserve debunking?
This post, written by Richard Quinn with Humble Dollar, goes into these with some explanations and sunlight.
Retirement planning videos and books can be frustrating because of the conflicting advice from so-called experts. Often, these experts are outside the mainstream. They retired in their 30s, or saved 50% of their income, or claim to be living so frugally in retirement that they need to replace just half of their old salary.
I prefer to think more about average Americans facing the reality and challenges of planning for retirement in the real world. Let’s clear up some of the myths I’m hearing from these “experts.”
1. You need $1 million to retire. There’s no magic number other than the one that meets your needs. Imagine a worker with an annual income of $60,000 who retires at age 66. His Social Security will likely replace some 30% of his income. Add a spousal benefit and his income replacement reaches 45%. He doesn’t need $1 million in savings to replace the remaining income.
2. No way I can save enough to retire. For 80% of Americans, that is not true. It’s a matter of priorities—putting needs and savings ahead of wants and desires. Let’s say young adults save $100 a month and earn an 8% annual return over 40 years. At age 60 or so, their nest egg would be worth some $340,000 without ever increasing the $100 in monthly savings—which should never be the case.
Remember, you get help with saving through our tax laws and possibly from employer contributions. To get started, save your change every day—anything you can. Just do it. Once you accumulate a small nest egg, seek advice on how to invest it.
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3. Social Security won’t be there for me. Yes, it will. I predict within 10 years it will be improved, especially for lower-income beneficiaries. The political rhetoric about Social Security’s demise is unfortunate because it scares people unnecessarily.
True, the program must be modified to remain sustainable. But there are numerous relatively painless ways to accomplish that over time. Nobody is going to cut the benefits earned or already being paid—nobody.
4. There’d be no problem if Congress hadn’t “stolen” the Social Security money. This falsehood has been circulating for years. From their start in 1937, payroll taxes above those required to pay benefits were invested in special U.S. Treasury bonds. Today, those bonds generate $70 billion in annual interest for the Social Security trust fund.
All payroll taxes—along with that interest—are used to pay benefits, and soon the trust will also gradually redeem its bonds to pay benefits. Once all those bonds are redeemed, full accrued benefits cannot be paid from payroll taxes alone. Congress didn’t steal the trust fund, but it sure didn’t do its job ensuring that the trust fund remains solvent.
5. I’m frugal and plan to live on 50% of my pre-retirement income. Some Americans are forced to live on a small income or even Social Security alone. Being frugal is fine, but why plan for that? For folks who failed to save, there’s no room for error, and I suspect no room for anything other than necessities. Most people need much more than half their old salary for an enjoyable, low-stress retirement.
6. My retirement expenses will decline as I get older. That’s the standard view supported by surveys, but it’s not my experience—and may not be yours. The nature of your expenses will change over time, but your total annual spending may not. If you’re fortunate, you’ll spend more on discretionary items like travel, entertainment, helping your children, and so on. Overall, I submit there won’t be a spending decline, especially considering inflation. Long-term care, even at home, can be a real fly in the ointment.
7. When I retire, my saving days are over. Sorry, that’s not a good idea. Sure, you need to save less, but still something. You need cash in an emergency fund, and you’ll need to replace that money as it’s spent. The goal: Avoid paying large, unplanned expenses from the investments that you rely on for your stream of income.
8. Once I retire, I’m canceling my life insurance. Before you do, have you planned for your survivor’s income needs? A life insurance premium may be less costly than a survivor benefit arranged through a pension or immediate annuity, especially if the beneficiary is younger than the retiree.
9. I hear health care costs in retirement are more than $300,000. Those estimates include out-of-pocket costs and premiums over a retirement duration of 25 to 30 years. Don’t rely on one large number. Instead, look at your situation and think in terms of the annual expense.
Add up many ongoing costs over 30 years—property taxes, for example—and you’ll get a scary number. Once you qualify for Medicare, buying a Medigap supplemental policy can virtually eliminate out-of-pocket costs. Prescription drug costs can be an extra expense, however, and should be planned for.
The key to planning for your retirement is to plan your retirement and not one based on averages, medians or the advice of people who live on the financial fringe.
14 thoughts on “Nine Retirement Myths”
Get a financial advisor to run numerous Monte Carlo scenarios to assess best and worst case scenarios based upon multiple income needs assumptions. If you haven’t done so already, and if you can still be underwritten, get long term insurance. You are much more likely to become disabled and need assisted living care before you die. Don’t eat up all your savings. Realistically determine your life expectancy and decide when to start drawing Social Security benefits accordingly. Save, save, save if you can while you’re still young.
A friend is working through getting her parents into elder care due to mental decline. There’s no way they ought to work into their 90’s. Although they had saved, the current care has depleted resources and they are working through what to do with the house vs Medicare putting a lien on it. I’ll echo the end of the article… plan for your retirement situation.
Make it a gift to your loved ones to plan what you can, estate planning, joint accounts payable on death, trusts, care plan if you can and if you want to be buried (or other), detailing it and securing a plot. That avoids grandma’s ashes being kept in ‘that one closet ‘ and 1 sibling thinking she was lost in the move but the other sibling was holding on to her so she wouldn’t get lost in the move. Or folks who aren’t big tombstone visitors having to pick where to lay you to rest.
A friend is working through getting her parents into elder care due to mental decline. There’s no way they ought to work into their 90’s. Although they had saved, the current care has depleted resources and they are working through what to do with the house vs Medicare putting a lien on it. I’ll echo the end of the article… plan for your retirement situation.
Make it a gift to your loved ones to plan what you can, estate planning, joint accounts payable on death, trusts, care plan if you can and if you want to be buried (or other), detailing it and securing a plot. That avoids grandma’s ashes being kept in ‘that one closet ‘ and 1 sibling thinking she was lost in the move but the other sibling was holding on to her so she wouldn’t get lost in the move. Or folks who aren’t big tombstone visitors having to pick where to lay you to rest.
OMG so funny; I thought we misplaced my mom, she was on top of the TV amoire where the cat always sat. So she had company for like 8 yrs. She loved cats tho, so it worked out…..
Really good advice.
Get a great tax consultant (preferably an EA) and financial planner.
Work out the math to what you legitimately will need and what speed bumps you might hit and how you’ll pay for them.
Still a lot of guesswork going on.
Really good advice.
Get a great tax consultant (preferably an EA) and financial planner.
Work out the math to what you legitimately will need and what speed bumps you might hit and how you’ll pay for them.
Still a lot of guesswork going on.
I think this is great advice!
Everyone has different needs and wants and somehow has to adjust to these depending upon their income WHILE WORKING.
In retirement, it’s the same story.
For most people, including me, there is never enough money because there are always new, big, better ways to spend it!
Saving more is definitely better than saving less as you don’t want to be on the street corner with a hat when unexpected expenses occur.
Medical expenses and the possibility of long-term care are definitely wild cards that can drain savings quickly and thoroughly. Difficult, if not impossible, to plan for that!
Taking advantage of all government retirement programs (IRA, 401K, Roth) that allow tax savings should be the bare minimum of any retirement plan.
Paying off a mortgage would be another great move.
Never stop working until you die (that’s what my Dad did-worked well until he was 90) is another tried and true approach.
Like medical care, every retirement plan must be individualized.
Thanks for the article!
A Medicare supplement is not needed. Original Medicare is a great health insurance plan. I have 13 years of experience on Medicare without a supplement, have consumed an average amount of healthcare and have saved at least $30,000. Do the math!
Medicare supplements make the insurance companies rich and deplete retirees dollars.
That is not true. I am a physician and I see patients everyday complaining of drug cost and out of pocket medical expenses. Nowadays, some chemotherapy drunks cost $10-$15 Thousand dollars a month.
Medicare supplement and drug policy is a MUST.
You probably you are luckily healthy, but for the unfortunate unhealthy, the best advice is to get the above additional policies.
I think this is great advice!
Everyone has different needs and wants and somehow has to adjust to these depending upon their income WHILE WORKING.
In retirement, it’s the same story.
For most people, including me, there is never enough money because there are always new, big, better ways to spend it!
Saving more is definitely better than saving less as you don’t want to be on the street corner with a hat when unexpected expenses occur.
Medical expenses and the possibility of long-term care are definitely wild cards that can drain savings quickly and thoroughly. Difficult, if not impossible, to plan for that!
Taking advantage of all government retirement programs (IRA, 401K, Roth) that allow tax savings should be the bare minimum of any retirement plan.
Paying off a mortgage would be another great move.
Never stop working until you die (that’s what my Dad did-worked well until he was 90) is another tried and true approach.
Like medical care, every retirement plan must be individualized.
Thanks for the article!
A Medicare supplement is not needed. Original Medicare is a great health insurance plan. I have 13 years of experience on Medicare without a supplement, have consumed an average amount of healthcare and have saved at least $30,000. Do the math!
Medicare supplements make the insurance companies rich and deplete retirees dollars.
That is not true. I am a physician and I see patients everyday complaining of drug cost and out of pocket medical expenses. Nowadays, some chemotherapy drunks cost $10-$15 Thousand dollars a month.
Medicare supplement and drug policy is a MUST.
You probably you are luckily healthy, but for the unfortunate unhealthy, the best advice is to get the above additional policies.
AGREE!!!
That is not true. I am a physician and I see patients everyday complaining of drug cost and out of pocket medical expenses. Nowadays, some chemotherapy drugs cost $10-$15 Thousand dollars a month.
Medicare supplement and drug policy is a MUST.
You probably you are luckily healthy, but for the unfortunate unhealthy, the best advice is to get the above additional policies.