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.
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, 72% of workers think they will continue to work for pay after they retire, according to the 2021 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 30% of retirees have actually worked for pay, according to the EBRI survey. What’s more, the survey 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.
Your Social Security benefits will cover all your expenses
The EBRI survey found 87% of workers and 92% of retirees expect Social Security to be a source of income in retirement. Among baby boomers, 69% 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 start benefits at your full retirement age in 2021, Social Security will only cover 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.
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 72.
Plus, your Social Security benefits could be taxed if you earn too much from various income sources. As we reported last year, 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 “5 Ways Retirees Can Lower Their Income Taxes.”
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, people ages 65-74 years old spent $52,356 last year, according to the 2020 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.
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 age 50 or older want to age in place, according to a 2021 survey from Capital Caring Health, a nonprofit elder care provider.
The reality: People may want to age in place, but it is not always a possibility. The nonprofit United Disabilities Services Foundation says only 1% of homes in the U.S. are conducive to aging in place. Perhaps that is one reason why 37% of seniors receive care in a facility, according to the federal Administration on Aging.
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 retiring at age 65 in 2021 will need approximately $300,000 to pay for medical expenses in retirement — and that doesn’t include money for long-term care.
Add a Comment
Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.