Common misconceptions when planning for retirement
It can be difficult for individuals to distinguish myth versus reality, particularly when it’s a subject matter that’s not their expertise. One topic that is riddled with misconceptions is retirement, for a secure financial future, it’s important that investors don’t get caught believing misconceptions. Below are a few retirement myths that we’d like to set straight.
Myth: Spending decreases in retirement
It’s crucial for investors to know that spending does not necessarily decrease during retirement. When retiring, people want to enjoy their time doing things they couldn’t while working. These new activities, such as traveling, tend to be expensive. And since they aren’t spending 40 plus hours a week at work, retirees have more time in the day to spend money shopping, dining out, attending social events or going to the movies.
Myth: Save 80 percent of pre-retirement income
The rule of thumb to save 80 percent of pre-retirement income is misleading. For many individuals, it’s necessary to have 100 percent of their pre-retirement income in order to maintain their current lifestyle in retirement. Planning for retirement isn’t cookie-cutter and like anything, general guideline rules may work for a few people, but the chances are that they won’t fit the majority of people very well at all. Guidelines can may be a good place to start, but having a personalized plan is what will help get you to the finish line.
Myth: Social Security provides enough income
If pre-retirees plan to live off of Social Security, they may not have the quality of life they expect in retirement. One way to figure out if Social Security provides enough is to work backwards by looking at how much income will come from Social Security each month. Then figure out how much income is needed in total, from there investors can figure out how much income they will need to draw from investment accounts and savings. This is the number they will need to know to supplement Social Security. If that number seems far off, workers can delay retirement. Each year retirement is delayed, Social Security increases 8 percent up to age 70.
Myth: Medicare will cover healthcare expenses
Healthcare costs are one of the most under planned for expenses in retirement. This is particularly true for individuals who plan to retire prior to the age of 65, since they won’t be covered by Medicare until age 65. The older retirees get, the more healthcare costs they’ll face. Medicare will also only cover a certain percentage of prescription drugs for illnesses and chronic health issues.
It’s important to know the facts when planning for retirement. The last thing anyone wants is to have years of planning and saving derailed because they didn’t have the proper information.