A comfortable, secure retirement is one of the biggest financial goals you can strive for. So as you're saving and investing in pursuit of it, it's crucial to separate fact from fiction -- otherwise, your plan could go off track.
There are a few pervasive retirement myths to beware of along the way. While they may not seem harmful at first glance, believing in them could reduce your odds of being able to enjoy your senior years in the ways that you hope to.
Myth No. 1: You will be able to continue working as long as you'd like to
If your savings are lacking, it can be tempting to think that the solution will be to simply push your retirement date back. While delaying retirement to give yourself more time to save can be a smart idea, counting on that strategy is risky.
Nearly 40% of current retirees say they retired earlier than they'd planned, according to a report from the Aegon Center for Longevity and Retirement. The survey also found that job loss and health issues were among the most common reasons for those unexpected early retirements. And notably, only 15% of those who left the workforce ahead of their original schedules said they did so specifically because their finances allowed it.
Long before you retire, you should have calculated approximately how large a nest egg you'll need in order to live the way you intend to in your senior years. If your current retirement savings plan is unlikely to hit that size on schedule, don't just assume you'll be able to make up for the shortfall by working longer. You might not. For that reason, it's wiser to look for ways to save as much as you can now so that if you are forced to retire early, you'll be more prepared.
Myth No. 2: Medicare will cover all your healthcare needs
Medicare can be confusing: 68% of baby boomers say they wish they understood it better, a 2020 survey from the Nationwide Retirement Institute found.
One of the more common misconceptions about the program is that will cover all your healthcare needs in retirement. Not so. While Medicare can significantly defray the costs of healthcare, it doesn't pay for everything. Original Medicare (or Parts A and B) primarily covers hospital visits and outpatient care; it doesn't include routine services such as dental or vision, and it also won't cover prescription drugs.
Medicare Advantage plans can provide more extensive coverage to those who enroll in them, but they often have higher premiums than Original Medicare. In addition, the average 65-year-old couple can expect to spend nearly $300,000 on out-of-pocket healthcare expenses throughout their retirement, according to a study from Fidelity Investments.
If your budget plans don't include enough for out-of-pocket healthcare expenses, those costs could derail your finances in retirement.
Myth No. 3: Social Security is going to go bankrupt
Nearly 90% of Americans say they'll depend on Social Security for at least a portion of their income in retirement, according to a Gallup poll. So the possibility of those benefits going away is a serious concern.
However, while the program does have its financial challenges, it's not going bankrupt. The Social Security Administration (SSA) has since the early 1980s been taking in more money in payroll taxes than it paid out in benefits, and saving the surplus in its Trust Funds. But in 2020, that changed. Due to the huge numbers of Baby Boomers retiring, the program will pay out more this year than it takes in, and it has started drawing down on the Trust Funds to make up the difference.
The Trust Funds as of the end of 2019 held about $2.9 trillion. And as large as that number might sound, with people living longer and the number of retirees rising, the SSA is forecasting that its entire surplus will be depleted in 2034.
Once that happens, the SSA will have to rely almost completely on the income from payroll taxes to cover its monthly checks to retires. Those taxes are only expected to cover around 76% of future benefits, meaning the government would have to cut retirees benefits by nearly one-quarter if Congress doesn't agree on a way to solve the program's income shortfall problem before 2034.
Even in the worst-case scenario, though, those benefits wouldn't go away entirely. While you may not receive as much as you expected, retirees will still get something from Social Security as long as workers continue paying payroll taxes. So while you might be wise to plan for the possibility of a reduced benefit, you don't need to stress about the possibility of not getting one at all.
Saving for retirement is challenging enough as it is, and falling for these myths could make it even more difficult. By focusing on the facts and ignoring the misconceptions, you can head into retirement as prepared as possible.