Preparing for retirement is hard enough but if you believe these retirement myths, you’re likely to run out of money early. Unfortunately, most of these myths are still being bandied about.
- You can rely upon Social Security. The average Social Security benefit is $1,328 a month, an amount close to poverty level. Social Security was never meant to be the sole support in retirement.
- You don’t have to worry about inflation. If you’re old enough to contemplate retirement, you’re old enough to remember that in 1980 inflation rose to 13 percent. Even a small jump in inflation will mean your current dollars are worth less but should we ever return to a more typical 5 percent or more, inflation will take a bite out of your retirement.
- The stock market will produce your wealth. We’ve been in a bull market for the past six years so we’ve seen stock prices rise without significant drops for quite a while. And while stocks are great for the long term, they do tumble. Just look to 2008 and 2001 to see how those markets treated people’s investments and retirement accounts.
- You can work if you need to. Poll after poll shows that retirees often think that they’ll work for longer periods of time than just up to a retirement age but to accomplish that goal you need several things. One is that your own health must be good enough to keep working and too many Americans have chronic disease by the time they reach 65 for that to be the case for the majority. The next is that your parent, partner or child must also be in good health or you’ll come out of the labor market to care for them. The third is that you need to be able to have the stamina to work a job and employers must be willing to hire you. Nobody wants to claim ageism in the work place but it exists. It’s often very difficult to find work once you are over the age of 65.
- You can rely on inheritance. Recent news stories are trying to break the news to Baby Boomers gently but longer lives and poorer health outcomes at the end are cutting into a lot of inheritances
- Live off the interest. Seen an interest rate higher than 2 percent recently? It’s been a while since anyone was able to survive on interest alone. For the same reason, living off bonds and CDs in retirement is likely to cut into your principal quickly. It’s okay to cut into your principal, that’s why you saved it anyway but you don’t want the principal to be cut into too much too quickly
- A million bucks is the magical number. Most people will need to support themselves for 25 to 30 years and a million dollars doesn’t buy as much as it used to. In addition, an uncovered medical condition can cost you upwards of $100,000 a year for nursing care only
- You’ll spend less money in retirement. Often it’s quite the opposite especially initially as retirees pay for the travel and other things they’ve waited all their careers to do. Later on health issues will cost more than your current health costs and as mentioned above that portion of your budget can exceed most people’s planning.
- Medicare will cover your health costs. Medicare doesn’t pay for everything and co-pays and deductibles can bite into your own savings. Supplemental policies can help pay for some of those costs but that insurance too will costs money and the price of it increases nearly every year.