Diving into retirement without giving it any thought isn't the best idea. You should really spend years planning for retirement so you're able to go in ready. But in the course of your planning, you might come across some misinformation that could lead you to make very poor decisions. Here are a few myths with the potential to wreck your senior years.
1. You don't need money outside of Social Security
You'll often hear that if you buckle down and live frugally, you can get by solely on the income you collect from Social Security. In reality, Social Security only pays the average senior today $1,543 a month, and in recent years, its annual raises have been notably stingy. If that sounds like enough to live on as a senior, then go ahead and neglect your nest egg. Otherwise, you may want to start pumping money into an IRA or 401(k) plan while you can so you'll have income available to supplement what could be a very modest monthly benefit.
2. Your living costs will shrink substantially
Many people assume that once they retire, they'll magically start to spend a lot less. But why? The bulk of the bills you face as a member of the labor force will stay in place once you stop working, and while you may not have to pay to commute to a job, that's probably just a small portion of your total household budget.
Now to be fair, if you regularly contribute about 20% of your income to a retirement plan, that is a significant expense you won't have to bear once you actually enter retirement. But even so, you're still looking at spending about 80% of what you'd normally spend as a worker. Furthermore, some of your living costs, like healthcare, might climb in retirement, which is all the more reason to plan on needing money outside of Social Security.
3. Your tax burden will be much lower
You may have heard that as a general rule, seniors get a break on taxes. But that's just false. If your income declines substantially once you enter retirement, then yes, you will see your tax bill start to shrink because you'll be earning less. But for some people, taxes stay the same in retirement or even increase.
Imagine you've saved nicely for retirement and therefore are able to take generous withdrawals from your IRA or 401(k) on a regular basis -- which, to be clear, is something you should do, because that's what that money is there for. Unless you have your money in a Roth IRA or 401(k), your withdrawals will be taxable.
On top of that, you may have other income coming in from Social Security that pushes your annual earnings above what you used to earn at a job. In that case, your taxes might increase. And while lower earners can sometimes get out of paying taxes on Social Security benefits in retirement, if you're looking at a comfortable retirement income, your benefits will likely be taxed.
When it comes to retirement, there's a lot of bad information out there. Knowing what myths to ignore could help you better plan for your future -- and avoid the blunders that set so many seniors back.