Aside from putting money away for retirement, it's doubtful that most people have spent much time poring over the details of their retirement plan. And honestly, who has time -- especially while still working? The fact that many don't have time to study the details of retirement gives myths room to sneak in and become so at home that they feel like the truth.
Here are some of the most common retirement myths, followed by the reality.
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1. Myth: Social Security will cover all your monthly expenses
Reality: Social Security was never designed to cover 100% of a person's retirement expenses. Rather, it's supposed to supplement your income. It's vital to have additional sources of income and savings.
While it's possible Congress will work together long enough to pass legislation that will meaningfully shore up the Social Security trust, it's still important to have a plan B, an alternate source of income you can draw from if benefits are cut.
2. Myth: I can count on my pension
Reality: Hopefully you can, but it's essential to have a retirement plan that's diversified enough to help you cover your bills, even if the company (or companies) you worked for join the ranks of those that have reduced or eliminated pensions. Much like Social Security, it's good to hope cuts will never occur. However, if they do, a back-up plan can help you stay on track.
4. Myth: I'll be in a lower tax bracket once I retire
Reality: It all comes down to your income sources in retirement. Let's say you're getting Social Security, own rental property, and are drawing from an employer-sponsored retirement plan. You may bring in just as much money in retirement as you earned while you were working. Plan for taxes accordingly.
5. Myth: Healthcare costs will decrease in retirement
Reality: If you're planning to be covered by Medicare, it's vital to understand that it's not free. While you'll get Part A (hospitalization) for free when you turn 65, you'll still have copays, deductibles, and other out-of-pocket expenses that you're responsible for paying. In addition, you'll pay for Part B coverage (for services like doctor's visits and outpatient care), and at least a portion of the cost of medication. Make potential healthcare costs part of your retirement planning.
6. Myth: There's no way I can afford to save for retirement
Reality: There's no denying that saving for retirement is a struggle for millions of Americans, especially today. However, if you're working, there are steps you can take to cut expenses enough to put something into the kitty. Even if you can only save a little, it will build up over time. Here are a few tips that may be helpful:
- Call your cable, internet, and mobile phone providers to negotiate a lower payment. It may sound bold, but it's doable, especially if you have competing services available (for example, there's more than one cable provider in your area). Let the company know that you're seriously considering a switch and ask them for their lowest available rate.
- Cook in bulk. Rather than prepare one lasagna or soup, make two or three and freeze those you won't use until later. Cooking in bulk is a win/win. Not only will you save money by buying ingredients in bulk, but if you're not a big fan of cooking, a good portion of your upcoming meals will already be made. All you have to do is heat them up.
- Plan game nights. Instead of meeting friends at a restaurant or bar, schedule game nights. Each person can bring a snack and their favorite game and you can rotate who's hosting.
- It's possible that you've been reminded (100 times) to comb through your subscription services and cancel any you no longer need or want. Consider this your 101st reminder.
In the same way bills slowly add up, so does savings. It's all about making small changes anywhere you can.
7. Myth: Real estate is always a good investment
Reality: While plenty of people have done well with their real estate investments, they come with risks and costs. As with any other investment, don't put all your eggs in one basket. If real estate is part of your portfolio, that's great -- if you're diversified enough to weather the ups and downs of that investment.
8. Myth: I'll automatically adjust to living on less in retirement
Realty: Retirement does not spell the end of your hopes and dreams. In fact, for many seniors, it's a brand-new start, a chance to do the things they've always wanted to do. Even if your favorite thing to do is fish with a buddy or visit your grandkids, you're still going to want to do other things. Consider how you might want to spend your retirement and save accordingly.
What's the worst that can happen? You may just end up with more in your savings account than you need.
Letting go of retirement myths is one of the kindest things you can do for yourself. You don't need to have a king's ransom put away, but you can aim to have enough to live life on your terms.
