Retirement is a time to relax and enjoy the fruits of a lifetime of labor. But if you want to relax rather than worrying about your finances, you need to start retirement planning as early as possible. Meeting with a financial advisor gives you an opportunity to estimate your retirement income, get professional investment advice, and learn about what you can do to create a more secure retirement future. It is important to avoid myths about retirement to ensure you make informed decisions and have a solid financial foundation.
While you wait to meet with a retirement planning professional, review these myths about retirement. Once you understand the reality of financial planning for retirement, you’ll be more prepared for their advice.
Retirement Myths That Can Derail Your Retirement Planning
The closer you are to retirement, the more common it is to receive financial advice from the people in your life. Colleagues want to share their stock tips, your brother-in-law thinks you should invest in mutual funds, or someone at your church wants you to buy savings bonds. When information is coming at you from all directions, the best thing you can do is meet with a fiduciary financial advisor. A fiduciary must manage your money in a way that benefits you, not them. A professional can also dispel some of the most common retirement myths, such as the ones below, and help you come up with a solid plan for your retirement savings.
Myth #1: You Can Live Off of Social Security Income
This is one of the most common myths about retirement. Although you may be entitled to receive Social Security benefits, they probably won’t be enough to cover your expenses once you retire. This is especially true if you’re still paying off your mortgage or someone in your household has high health care costs. Additionally, there’s no guarantee that Social Security will always exist in its current form. As the Social Security Administration depletes its reserves, officials may have to reduce monthly benefits or increase the full retirement age. Therefore, your retirement plan should include several types of savings and investments.
Myth #2: It’s Too Late for You to Start Planning and Saving for Retirement
Although it’s best to start retirement planning as early as possible, it’s never too late to increase your retirement income. Even if you’re already 55 or 60 years old, you still have several years to save as much money as possible. As part of your retirement plan, you may want to delay taking your Social Security benefits for as long as you can. If you file for Social Security at age 62, you’ll only get 70% of your full benefit. Waiting until you’re 70 makes you eligible for 124% of your full benefit.
Myth #3: Health Care Costs Are Covered by Medicare
If you’re eligible for Medicare, you can enroll when you turn 65. The monthly Part B premium comes out of your Social Security benefits, reducing your retirement income slightly. Once you’re enrolled, don’t assume that your health care expenses are completely covered. Like other types of health insurance, Medicare has co-pays, coinsurance, and deductibles. For example, Original Medicare has a $1,600 deductible for each benefit period. This means you have to pay $1,600 worth of medical expenses out of your own pocket before your Medicare coverage kicks in. Additionally, Original Medicare doesn’t include prescription coverage, so you may have to purchase a separate Part D drug plan.
Myth #4: Contributing to a 401(k) or Similar Plan is Enough for Retirement
A 401(k) is a great start, but it shouldn’t be your only form of retirement income. Unlike many retirement plans, a 401(k) has annual contribution limits determined by the Internal Revenue Service. For 2023, you can save a maximum of $22,500 if you’re under 50 and $30,000 if you’re 50 or older. If you don’t open a 401(k) until later in life, this limits the amount you’re able to save. Therefore, your retirement plan should include other sources of income, such as mutual funds, index funds, or an individual retirement arrangement (IRA). Multiple sources of income give you more retirement security.
Myth #5: There’s a Set Age for Retirement — Retire at 65
You become eligible for Medicare when you turn 65, but that doesn’t mean you have to stop working immediately. If you enjoy your job and don’t have any health conditions that make it difficult to work, there’s no reason you have to retire early. As noted previously, delaying your retirement may help you maximize your monthly Social Security payments. Waiting to retire also gives your investments more time to grow, increasing your retirement income. When you create your retirement plan, think about how long you want to work and what you need to do to reach your goal.
Myth #6: Your Taxes Will Be Reduced in Retirement
Many people assume that their retirement income will put them in a lower tax bracket. That’s not necessarily true. With careful retirement planning, you may receive as much or more money every month than you did when you were working. If you receive a substantial income, you have to pay taxes on your Social Security, and you may also owe taxes on some of your other retirement income. For example, a 401(k) is a tax-deferred investment, which means you don’t pay any income tax on the funds until you start making withdrawals. As a result, you could end up paying higher tax rates once you retire.
Myth #7: I Need to Be Cautious With My Retirement Savings
Saving for retirement is important, but don’t fall into the trap of worrying about every penny you spend. Sure, you don’t want to spend your company pension or empty out your 401(k) the day you retire, but don’t be afraid to spend money that helps you live a happier, healthier life. For example, if you need a little help with activities of daily living, spend some of your money on personal care services. The purpose of retirement planning is to make sure you have enough money to meet your needs, so don’t skimp on services designed to help you thrive.
Myth #8: I’ll Spend Less With Retirement Income Than I Do Now
If you live in a paid-off home, it’s easy to assume you’ll spend less during retirement than you do now. That’s not always true. Even the best retirement plans don’t always account for major life changes, such as increased travel or a new health diagnosis. You may end up spending more money each month. As you save for retirement, it’s important to do regular check-ins with a financial planning professional. Your advisor can help you make wise decisions, making it easier to save for retirement.
Enjoy a Comfortable Retirement
It’s hard to predict what will happen during your golden years, but you can avoid financial emergencies by planning ahead and saving as much money as possible. With careful planning, it’s possible to cover your living expenses and get more enjoyment out of life. To learn more about the luxury retirement options available at Riddle Village, the leading retirement community in PA, call (610) 891-3700 or schedule a visit online.