Busted: Five Retirement Myths

Many boomers nowadays are starting to have retirement concerns, especially because many of them are nearing retirement and they are not confident that they can be financially independent once they retire. The biggest fear they have is outliving their savings due to the risk of dealing with a health and long-term care event which can be financially devastating.

The sad part is: many are frightened of retirement because they were not able to prepare for it sooner or at all. While some people were able to put away a significant amount, they forgot about inflation. What they estimated would last them for twenty years may only last for ten or less.

Photo credit: retirementplanningmadeeasy.com

The reason why people fail at saving is because they believe certain retirement myths instead of welcoming and enjoying retirement.

Here are five busted retirement myths you must avoid:

1.       There is a specific set percentage of your current income you must save to retire comfortably.

Generally, financial experts often suggest that you save eighty percent of your current income until you retire. However, this isn’t entirely true and often, will not work for everyone.

You can use online retirement calculators to see estimated figures of how much you will need for your retirement plan. Such calculators are offered by CNN Money, Bankrate, Bloomberg, etc. You need to get the figure for your anticipated costs during retirement and not your current lifestyle.

Remember that there is no “magic number” you need to hit to determine that you’ll be ready for retirement. Your $1,000,000 in the bank won’t be worth the same today after five to ten years in your retirement. Saving as much as you can will leave you better off.

2.       You can live entirely on Social Security.

Living entirely on Social Security would mean living a minimal costs lifestyle. You will not be able to live in comfort if rely only on your benefits. In 2014, the average benefit is only $1,294, which is barely enough to sustain retirement, and is the major source of income for most of the elderly.

Before you retire, you must not consider Social Security benefits as your primary financial resource. One reason is because Social Security benefits are unstable, with some people wondering if there will be Social Security by the time they retire.

Another reason why you must not solely rely on Social Security: the benefit amount and eligibility age may change by the time you retire.

In addition, don’t assume Medicare will cover all your health care needs either. Take care of your health now, and include medical expenses in your budget when you plan for retirement.

3.       Retirement doesn't need to be prioritized.

You are not obliged to prioritize your retirement, but if you won’t, who will? If you have any debts, you certainly should try to pay those off before you retire.

Before you retire, you need to have these:

·         An emergency fund

·         Basic savings

·         Retirement savings

You need to focus on having these before thinking of rewarding yourself a new car or a luxurious vacation, unless you make more than enough and you have accomplished the list sooner.

4.       Your money needs to be safe.

It’s true that your money will be safer in a CD, bonds, or a savings account. It will gain interest, but not to an amount that can significantly help your retirement.

Putting your money into a financial institution will help keep it safe, but it will also limit its purpose. You’ll be better off buying something practical such as life insurance or long term care insurance.

While life insurance works best for people who want to leave something for their loved ones if they pass away, long term care insurance is great for people who want to secure their health later in retirement.

You can also think about investing your money by owning a property and become a landlord. Just be sure that your money will be put into use and not just left stuck in a safe.

5.       There are specific retiree-friendly states.

Although there are some states that have a reputation for being retiree-friendly due to having no income tax, these states have high property or sales taxes, or a high cost of living.

Such states include:

·         Alaska

·         Florida

·         Nevada

·         South Dakota

·         Texas

·         Washington

You can't plan to have extra money for retirement by simply moving to another state without doing a thorough research.

A sure way of having enough savings for retirement is by starting to save as soon as now. Although some people are now choosing to work at least part-time during retirement, you are not obligated to follow in their steps.

If you plan carefully, it’s possible for you to go through retirement without ever considering working even part-time. Just remember to find out the truth about retirement and avoid the myths.

  

Sources:

• http://wallstcheatsheet.com/personal-finance/5-retirement-myths-debunked.html/?a=viewall
• http://www.ssa.gov/news/press/basicfact.html
• https://www.fpsinsurance.com/essentials/retirement/
• http://money.cnn.com/calculator/retirement/retirement-need/
• http://www.bankrate.com/calculators/index-of-retirement-calculators.aspx
• http://www.bloomberg.com/personal-finance/calculators/retirement/