Retirement Myths You Must Never Get Trapped By
Do you think you are ready to retire? The possibility that you aren’t as prepared as you think is high if you have been planning your retirement the conventional way. A lot of the assumptions regarding the amount of money you will need to have a comfortable post-retirement life are being reversed as people outlive the life expectancy. If you’ll live 20 years or more after you retire, a whole new level of planning is required. This implies that the things that may have been true in times past when people didn’t live that long have turned into a myth.
Determine for yourself if you’re guilty of these myths.
RETIREMENT MYTH ONE: I HAVE ENOUGH SAVINGS TO LIVE ON.
To live a worry-free life in retirement, how much do you really think will be enough…$250,000…$500,000? A recent study showed that 47% of people who are currently working believe that they need a minimum of $500,000 to live a comfortable life in retirement.
Let us assume that you have saved and you live 20 years after you retire. That sums to only $25,000 of principal per annum to live on — this includes settling any unforeseen health care costs. Currently, it is estimated that a 65-year-old couple who retire in good health must reserve $259,000 to finance premiums for Medicare and Medigap (Part B & D of Medicare are not free), as well as other out-of-pocket expenditures. The retired couple has a 90% chance of having sufficient funds to pay for their healthcare expenses with this $259,000. Should one partner become gravely sick, the $500,000 savings might vanish much faster. Also, let’s remember inflation and factor that in as well: the value of $25,000 in the first retirement year may be much more than its value in 20 years time.
Fact: Spend time figuring out the exact amount you need to maintain your lifestyle in retirement, put in a few extra to make up for inflation and unforeseen expenditures, and then make an effort to save toward this goal. It’s more realistic!
RETIREMENT MYTH TWO: YOU CAN PREDICT SOCIAL SECURITY.
If you’ve got grandparents or parents receiving Social Security, you have most likely been taking it for granted that because it is a government program, you will collect yours when it’s time. However, do you think that amount will suffice? Nowadays, though Social Security makes up about 39% of the income received by an average American retiree, this amount might not suffice for covering basic living expenses.
It is estimated that by 2034, the Social Security system’s joint trust funds pay for a part of aged and disability benefits will come to an end. The benefits of Social Security will not vanish totally then since the younger workforce members paying payroll taxes will be capable of funding about 79% of listed benefits. Once that occurs, Social Security will only be capable of paying the benefits supported by present Social Security taxes, except Congress addresses the shortfall in funds.
Fact: Never rely on Social Security as a steady stream of income. Find time to discover other dependable sources of income that is guaranteed.
RETIREMENT MYTH THREE: JUST 80% OF YOUR PRE-RETIREMENT YEARLY INCOME IS NEEDED.
In retirement planning, holding on to the conventional rule-of-thumb that only 80% of the income you were earning before you retired will be sufficient might leave you with a deficit, even though you have plans to live more prudently in retirement. How much more money you need will be determined by your personal financial situation and health.
Fact: Even though the 80% formula is quite popular, it doesn’t really carry much weight these days. Actually, the amount of money you will need when you retire is to a large extent dependent on the lifestyle you desire. If your plans include travelling, dining out often, or taking pleasure in more recreational activities and hobbies, etc, you might need more income. Financially supporting grown up children is another huge and frequently unforeseen cost that several retirees undertake.
RETIREMENT MYTH FOUR: STOCKS ARE A LOT OF RISKS.
The truth is that the nearer you reach the age of retirement, the more conservative you ought to be with your investments. However, that doesn’t imply that you ought to completely keep away from stocks. Your money must grow at a rate that outpaces inflation to enable it to retain its purchasing power for as long as you’re alive.
Fact: Never invest all your finances in equities; however, ensure you have a diversified investment portfolio that comprises an appropriate stocks allocation. Consult with a financial expert to discuss your retirement income needs and risk tolerance, and also help you in determining what is suitable for you personally.
THE end result
Trading in your briefcase as well as taking long commute for golf clubs and relaxed strolls on the beach sounds interesting, however, if you have not planned carefully, chances are that you’ll be unable to pay for your retirement dreams. If you make the correct assumptions and ignore the myths, it’ll go far in helping you save sufficient funds to live on when you retire.
2016 Retirement Confidence Survey, Employee Benefit Research Institute and Greenwald & Associates.
Paul Fronstin, Dallas Salisbury, and Jack Van Derhei, ebri.org Notes, October 2015, Vol. 36, No.10.
Written by 3rd independent party
2017-41547 Exp. 10/17