With thousands of online articles feeding individuals retirement information, it’s safe to say that there are a few myths out there. Much of the information online is either incomplete or incorrect — sometimes causing panic among future retirees. There is no “one size fits all” solution to personal finance questions. Every year, the numbers change, and different factors come into play, so it’s always essential to have a financial advisor. We wanted to get ahead of the game a little bit by debunking some common retirement myths.
Retirement Myth #1: “You need to have saved at least $___ before you retire.”
Regardless of the number you choose to fill in the blank, it’s most likely going to be incorrect. Many individuals guestimate a large number and assume that will surely be more than enough. Guessing isn’t an accurate way to save. Instead, it would be best to plan how much you’ll spend during retirement and save more than that amount. Don’t resort to adjusting your spending habits later on based on how much you save. Do precisely the opposite: save now for how much you plan to spend then.
Retirement Myth #2: “Medicare will cover my health care needs in retirement.”
Medicare is a great asset to have in your later years of life. However, don’t rely on Medicare to cover all medical expenses. It won’t cover most long-term care needs such as nursing home stays, assisted living, or other types of home health care. According to Employee Benefit Research Institute, the average retired couple should save around $265,000 to cover all possible health care expenses. You need to make sure that you have enough wiggle room for any potential issues that may arise.
Retirement Myth #3: “I won’t spend as much money when I retire.”
Another retirement myth is that retirees will have fewer and lower expenses in retirement than they did during their working years. Contrarily, many retirees tend to spend just the same amount, if not more, than they did before. Once retired, the expenses that previously revolved around payroll tax and 401k contributions will likely go towards travel, leisure activities, and so on. When you retire, you’ll want to maintain your current standard of living and sometimes even elevate it.
Retirement Myth #4: “I can always work longer or get a part-time job in retirement.”
While it’s entirely possible to continue working at the age of 70 or beyond, it isn’t an ideal situation. You can’t guarantee that your health will be fit to keep you or your spouse employed. Even if you contain excellent health, there remains the possibility of the company downsizing, the economy crashing or getting laid off. Regardless of how long you’ve been working for a company, financial difficulty puts everyone employed at risk. Part-time jobs also pose a considerable risk because many part-time jobs demand more than a few hours a week and require laborious work. Not to mention that many part-time jobs require working weekends and holidays. As your age advances, you’ll want to spend as much time as you can enjoying your family and loved ones, not working.
Retirement Myth #5: “You shouldn’t retire until your mortgage is paid in full.”
Many individuals get weary of carrying debt into retirement. However, the leverage can pay off if you have a great interest rate. Weigh the benefits of being debt-free with the opportunity cost of not having the cash available for other purposes. If your investment returns seem that they’ll be greater than the interest rate on your mortgage, you may want to consider investing the cash and obtaining a loan. Every investor needs liquid assets, and that flexibility is worth something.
Retirement Myth #6: “Stock market returns are primarily negative.”
Investing seems to be a touchy subject for many individuals. 72% of those surveyed said they believe that the stock market had more negative returns than positive returns over the past 35 years. A belief that the markets yield mostly negative results can have adverse effects on retirement account growth. The truth is that, over the past ten years, the average stock market return has been 9.2%. Regardless of how the market is doing, investing and withdrawal rates shouldn’t be severely affected. Experts say that consistency and strategy are the best steps to take for long-term investments like a retirement fund.
It’s important to remember that financial planning is highly personalized to each individual’s situation and goals. While doing your research is excellent and advised, it’s also strongly recommended to consult a professional before making any big decisions. Our IRA custodians here at RITA are equipped with the tools and knowledge to assist you in your retirement planning and self-directed IRA needs. You can rest easy with the proper guidance, knowing you aren’t falling prey to any retirement myths.