6 common retirement myths
- Having the right retirement plan and withdrawal strategy can help make your savings last
- Health care is one of the largest expenses in retirement. Are you prepared?
- It's important to have realistic expectations about what you'll pay in taxes and spend in retirement
Myth #1: How much to save for retirement
When it comes to how much to save for retirement, individuals of all ages pluck an arbitrary number out of the air and call it a retirement savings goal. And, often, retirees think if they withdraw only 4% from their retirement savings each year, they'll have enough to last a lifetime. But, there's no one right number for either.
Your retirement plan and withdrawal strategy should be as unique as you are, taking into account your current finances, future income, goals and dreams along with many other considerations.
What's more, your plan and withdrawal rate may change as your circumstances change. Your advisor can help you calculate — and recalculate — what retirement savings goals are right for you and your retirement savings withdrawal strategy.
Myth #2: Medicare will cover my health care needs in retirement
While Medicare can be a godsend for doctor visits and hospitalization costs, it does not cover most long-term care needs such as extended nursing home stays, assisted living and many types of home health care. In fact, the average couple age 65 with median prescription drug expenses needs to save $265,000 to have a 90% chance of having enough for health care expenses in retirement, according to the Employee Benefit Research Institute1. That's why keeping health care costs in mind is a vital part of retirement planning. These saving strategies can help ensure you save enough money for health care costs in retirement.
Myth #3: I can't count on Social Security
Here's a nice surprise. According to Ameriprise Senior Economist Russell Price, Social Security is probably more secure than people think. Adjustments made to Social Security back in 1983 have done a lot to improve the program's long-term viability, he says.
Of course, you can't count on Social Security payments to cover all your retirement needs. But, it can make sense to estimate what your payments will be as part of your overall retirement planning and budget. And keep in mind, if you delay Social Security payments beyond your full retirement age up until age 70, you may receive significantly larger monthly checks.
Myth #4: I can work as long as I have to
It's true that longer life spans mean more years in retirement and possibly more years working past age 65. Remember, however, that half of all early retirements are due to illness or disability. In addition, finding good paying jobs later in life can be difficult. The bottom line: Working past retirement age because you want to is a great goal, but it's probably best not to rely too much on this income when making your retirement plans.
Myth #5: I'll spend less and pay less in taxes in retirement
Depending on your goals, you may actually be spending more in retirement than you thought, especially if you are travelling, visiting children and grandchildren and pursuing new hobbies and activities.
Another related misconception: You'll pay less in taxes now that you're retired. But that assumes you'll have less income. If you end up with the same amount of income in retirement as you had when you were working, you may not be in a lower tax bracket. Also, you may qualify for fewer tax breaks such as mortgage and college savings deductions. At the same time, tax rates may rise in the future.
Learn more about managing taxes in retirement here.
Myth #6: I'll live in the same place throughout my retirement
You may figure that by the time you retire your mortgage will be paid — or maybe it already is — and your housing will be taken care of forever. In reality, moving is often a major part of retirement. You may decide to move closer to family members or into an urban area for the culture and convenience. You may find you need an assisted living situation or an area with more transportation and maintenance services at hand.
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