Shedding Light on The Myths of Retirement
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Certified financial planner, Mark Singer, wrote in his book, The Changing Landscape of Retirement – What You Don’t Know Could Hurt You,
“I feel that one of the most important lessons that can be learned is that what we “see” may be different than what is actually in front of us.”
Retirement planning can be an intricate activity. If you look up the internet, you will find a lot of advice on what to do and what not to do. These myths can be very misleading. Realistically speaking, there is no fixed mold for retirement planning. Retirement planning can vary depending on your income, investments, region-specific taxes, debt situation, etc. What may be ideal for your friend may not be for you. If you are on your path to retirement planning, be sure to steer clear of these myths
Top 8 Retirement Myths & their Realities
Myth no. 1: You will retire at a certain age
Most retirement planning guides are fixated on a certain age indicating when you should retire. To have a fixed age in mind when planning your retirement, can give you a false estimate. You may plan your retirement around the age of 65 but may have to retire sooner because of a health condition or a family concern. While it is good to have a plan in place, try and reach your goals sooner than the planned age. For example, if you want to retire at 60, then structure your retirement planning in a way that you reach your goals by 55.
Myth no. 2: You must save a million dollars before you retire
If you go by the internet, the most common myth that you can find on retirement planning is to save a million dollars before you retire. The amount you need to save for your retirement depends on your loan situation, your income, the place you want to settle in, your investments, etc. Your retirement fund withdrawals are also likely to be taxed at some point. Depending on your current and future incomes and the industry you work in, you may or may not be able to save as much. Moreover, your retirement goals can be severely affected by inflation in the future. This is why a fixed amount cannot apply to everyone. The best thing to do is to calculate how much do you need for retirement, based on your income.
Myth no. 3: Medicare is sufficient for health issues
While Medicare is a great service for people aged 65 or older, it is not enough to cover all your health expenses. Medicare only covers some limited services for free, so you will need separate insurance for most healthcare needs. Make sure to include these costs in your retirement planning goals. Getting insurance later in life can be costly, so make sure to get one while you are young.
Myth no. 4: You need not consider taxation during retirement planning
You may think that retirees are not subjected to taxes since they are not earning anything and hence, make the cardinal mistake of not considering tax in your retirement planning. Many of your retirement withdrawals like social security money and traditional IRAs are all taxable on withdrawals. Different states have different tax rules. For example, Nevada offers retirees a no tax policy, whereas Vermont charges taxes on social security as well as other retirement funds. Make sure to research well before picking a state for retirement and account these factors into planning your retirement.
Myth no. 5: Social security benefits will suffice
People tend to believe that social security is a replacement for your post-retirement income. As a rule of thumb, think of social security as 40% of your income. This still leaves you with the remaining 60%. To be financially secure fully, you need to have enough savings and investments. Many people also start using social security benefits as soon as they retire. Try and delay using such benefits to your 70s. This way you increase the benefits by a whopping 8% for each year that you wait.
Myth no. 6: Downsizing your home will reduce expenses
If you have been living in a bigger space with your children, you may feel the need to downsize after your kids move out. Many people think that downsizing their home can help them cut expenses and provide financial aid after retirement. In reality, the costs of downsizing your home are a lot more. You will end up paying property taxes, maintenance costs, location costs, HOA fees, etc. You must be aware of all these hidden costs before you downsize your home.
Myth no. 7 Lifestyle expenses reduce after retirement
People think that their routine expenses will be halved after retirement. It is true that with age and a difference in routine, you might cut out on some expenses, but there are several other factors that add to your expenses as well. For example, health expenses, travel to meet your children, etc. Your expenses can go either way and it is good to be prepared and not underestimate your expenses during retirement planning.
Myth no. 8: Investments aren’t for retirees
Many people only invest until they reach retirement. Investing your money post retirement can be a bit intimidating but it does not necessarily have to be taken off the table. You must remember that with bigger risks, come bigger rewards. If your retirement planning goals are on point, then you can go ahead and take some risks for bigger future returns.
To sum it up
Retirement planning is inevitable, and everyone has to embrace it, but there are several ways to approach it. Do not go by a standard mold. Take into consideration your needs, your family’s needs and then decide on a plan that works best for you.
Don’t want to fall prey to any retirement planning myths? Talk to financial advisors! They will not only bust all myths for you but also help you choose the right path for ensuring a comfortable retired life.