Retirement planning can be stressful when you have to consider finances, insurance coverage, social security, location, free time, etc. See what we mean? Myths and misconceptions about this new stage in life can only add to the anxiety you may be feeling. Planning for your future shouldn’t be a burden. One helpful tip: ignore these 10 myths:
Myth #1: Everyone should save the same amount.
Most people think that middle-class workers, low-income or minimum wage workers, and upper-class workers should save the same percentage of their paycheck each month. However, everyone is different and is accustomed to a different lifestyle. Look at your living expenses and figure out how you want to live in retirement. Adjust your saving to that with the rule of thumb percentage as a jumping off point.
Myth #2: You will spend just as much during retirement as you do when you’re working.
Retirement plans might have you needing to up your health insurance coverage or spend a little more money on traveling. Other retirement plans may have you saving money on food, transportation, and clothing as the need for these decrease. Depending on how you live your retirement, you may spend more money or less money than you did while you were working.
Myth #3: You’ll work until you’re 65 or older.
Those who plan to work into their mid-to-upper 60’s may have to retire earlier than expected due to medical reasons or other unexpected issues. This can make planning imperative to financial success post retirement. If you are planning to retire at 65, expect to save like you are retiring at age 60, in case you can’t work up to the age you originally planned.
Myth #4: Medicare will cover everything.
The month you turn 65, you can become eligible for Medicare. Unfortunately, Medicare only covers some services for free, and there will still be other expenses your insurance will not cover. You will need to keep money in your budget for costs such as premiums, copays, and any deductibles on visits, especially if you do not qualify for Medicare.
Myth #5: If you downsize your house, you will save money.
Most seniors who have had a family and kids their entire life consider downsizing their house because they have too much space or don’t like how expensive their mortgage payment is. Most seniors may figure that downsizing will save them money in the long run, which isn’t always true. Consider such expenses as property taxes, location costs, home maintenance costs, HOA fees, and other factors that may add to the price of the home.
Myth #6: $1 million will be enough.
One million dollars used to be the standard for retirement. It was believed this amount could allow you to live comfortably for the rest of your life. Due to inflation, increases in the cost of living, and longer life expectancies, $1 million isn’t what it used to be. If you don’t have much supplemental income besides social security, you may burn through that million before you are supposed to.
Myth #7: You will need to move into a nursing home or assisted living.
As bodies age, they may require a change in lifestyle and individual needs. There are many reasons someone may need to move into an assisted living or nursing home. However, some people may still have the option to live at home. In place of assisted living, you could make home improvements to better suit your physical needs or hire an in-home care provider. Proceeds from a reverse mortgage could help pay for these substitutes. While staying in your home may be an option, you, your family, and your doctor will know what is best for you. Consult the right people before making a final decision on where to live.
Myth #8: You won’t pay taxes anymore.
Most retirees think that since they stopped working and stopped making income, most of their taxes should disappear. People are surprised to find out there are still taxes to pay. If you receive money from social security or other retirement assets, including a traditional IRA, you may be taxed on those withdrawals.
Myth #9: Social Security will fully replace your paycheck.
Sure, Social Security will provide a post-career income, but it will not simply replace your previous paycheck. For most, social security replaces about 40% of their pre-retirement income. To be financially secure for the rest of your life, you have to have other sources of income too.
Myth #10: Taking Social Security benefits earlier is better.
Most think that you should start collecting your social security check right when you turn 62, but you should try your best to wait as long as you can up to the age of 70. According to financial professional Todd Campbell, by delaying your social security, you will increase your benefit by about 8% each year you wait. If you need money to live on while allowing other assets like social security to grow in value, consider getting a reverse mortgage.