You might spend decades dreaming about your retirement, but if you don’t do your homework, you could be in for an unpleasant surprise.
Some people buy into myths about retirement — such as how much they’ll spend and where they’ll live — without realizing that reality can be much different. By the time they discover the truth, it could be too late to make adjustments to their retirement plan.
Don’t get caught off-guard. Make sure you don’t fall for these common retirement myths.
1. You can always work longer if you don’t have enough savings
It’s not unusual for people to think they can simply delay retirement or work part-time if they have meager savings. In fact, 73% of workers think they will continue to work for pay after they retire, according to the 2023 Retirement Confidence Survey from the nonprofit Employee Benefit Research Institute.
The reality: While most workers think they will still earn a paycheck after retirement, the truth is only 23% of retirees have actually worked for pay, according to the EBRI survey. What’s more, a 2021 survey by the organization found nearly half of retirees left the workplace earlier than expected.
Some people may retire early because they are financially able to, but health problems, layoffs or family needs may push others out of the workforce before they had expected.
2. Your Social Security benefits will cover all of your expenses
The EBRI survey found 88% of workers and 94% of retirees expect Social Security to be a source of income in retirement. What’s more, nearly a quarter of all workers say Social Security will be their primary income, according to research from the Transamerica Center for Retirement Studies.
The reality: Certainly, many workers rely on Social Security to pay most or all of their bills. But if you plan to do that, your lifestyle may need to be downgraded. The Social Security Administration says these benefits were never intended to fully replace your pre-retirement income.
If you started benefits at your full retirement age in 2023, Social Security only covers about 28% of your pre-retirement income if you’re a high earner. That percentage is 42% for medium earners and 78% for very low earners, according to the government.
3. You won’t pay much in taxes after retirement
With your exit from the workforce, you may assume big tax bills will be a thing of the past. After all, you won’t have to worry about Uncle Sam taking money from a paycheck, right? The problem is many retirees overlook the tax obligations that may come with their other retirement income.
The reality: If you have a traditional — as opposed to a Roth — IRA or a 401(k) account, you’ll need to pay income tax on all your withdrawals. You can’t avoid the tax by delaying withdrawals indefinitely either since the government mandates required minimum distributions beginning at age 73.
Plus, your Social Security benefits could be taxed if you earn too much from various income sources. As we have reported, half of retirees now pay income taxes on at least a portion of their Social Security benefits.
To see how you can lessen the burden, read “7 Ways Retirees Can Lower Their Income Taxes.”
4. You’ll spend significantly less after retirement
Retirement means no more commute, business clothes or work lunches. By your mid-60s, you may also expect to own most of what you need and have debts paid off. However, even if all those things are true, that doesn’t mean your spending will drop substantially.
The reality: On average, households led by people ages 65-74 years old spent $60,844 in 2022, according to the Consumer Expenditure Survey from the Bureau of Labor Statistics. That is still a hefty amount of spending and likely more than many folks anticipated prior to retirement.
5. You can live in your home throughout retirement
Aging in place is the preferred way for many people to live out their golden years. The term refers to people remaining in their homes as they get older rather than moving to a retirement community, assisted-living facility or nursing home.
Nearly 90% of Americans ages 50-80 want to remain in their homes as long as possible, according to a 2022 survey from the University of Michigan.
The reality: People may want to age in place, but that is not always a possibility. Many homes are not conducive to the needs of seniors, with the University of Michigan finding only 19% of survey respondents have home entrances without stairs or with a ramp and a mere 7% have barrier-free showers. Perhaps that is one reason why 37% of seniors receive care in a facility, according to the federal Administration on Aging.
6. Medicare will cover all your health care costs
If you fail to plan for health care expenses, it could derail your retirement. Medicare provides valuable health insurance coverage to millions of Americans age 65 and older, but it can’t be counted on to cover all your costs.
The reality: Depending on your Medicare plan, you may not have coverage for dental and vision care or hearing aids. Plus, no Medicare plan will pay for ongoing long-term care. All told, the Fidelity Health Care Cost Estimate predicts a couple who retired at age 65 in 2023 will need approximately $315,000 to pay for medical expenses over the course of retirement — and that doesn’t include money for long-term care.