15 Retirement Myths You Can't Afford to Fall For

If you want to enjoy retirement, you need to make sure you understand the financial realities of preparing for it and budgeting for your future.

Unfortunately, many Americans believe in some common retirement myths that could undermine their efforts to enjoy financial security as a senior.

Here are 15 misconceptions you may be harboring that you can't afford to believe if you want to be prepared for life after your paychecks end.

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Saving 10% of income for retirement is an oft-repeated rule of thumb that's often wrong. For most people, saving 10% simply won't provide enough to build a retirement nest egg that will provide enough lifetime income.

Instead of relying on a simplified rule that may not work for you, you should set personalized retirement savings goals based on your investing timeline and desired retirement age so you can make sure your savings is sufficient.

ALSO READ: Saving 10% of Your Income Really Isn't Enough for Retirement

Far too many people put off saving for retirement because they have pressing expenses they need to address currently and they assume they can catch up later.

While it's never too late to start saving for the future, it does become much more difficult to amass a large enough nest egg if you delay. It's better to start with saving something -- even if it's just a few dollars a month -- than to put off investing until an uncertain tomorrow.

401(k) accounts are popular retirement savings accounts because they are offered by many employers and investing in them is easy. But far too many people believe investing as much as possible in a 401(k) is always the best and easiest way to save for retirement.

The reality is, 401(k)s offer limited investing options and sometimes the fees are higher. It often makes sense to invest enough in a 401(k) to earn a full employer match and then look at putting money into other tax-advantaged plans to supplement your savings.

Relying on Social Security to provide all or most of your income in retirement is going to leave you falling short, but many people don't realize this because of a misconception that retirement benefits will provide enough support.

The reality is, Social Security replaces around 40% of preretirement income, which isn't enough to live on. Having savings that can produce additional income is essential.

ALSO READ: Are You Overestimating Your Future Social Security Benefits?

While some people plan to rely too much on Social Security, others have fallen for the myth that they'll get no benefits at all because the entitlement program is going bankrupt.

The good news is, that can't happen unless its current funding source is changed. Social Security continually receives payroll taxes from people who are working and paying into the system. The money from these payroll taxes is enough to pay most of the promised benefits.

While it's true Social Security's trust fund is in trouble and could run short by 2034, that doesn't mean benefits would stop -- they'd just be cut by around 22%. And it's unlikely lawmakers will let that happen.

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Social Security is the source of a lot of retirement misconceptions, and one of them has to do with tax rules surrounding benefits.

Unfortunately, many people don't realize part of their Social Security benefits could be subject to both IRS and state taxes. Whether this happens depends where you live and how much income you have.

That's because only 13 states tax Social Security benefits while the IRS takes a cut only if your provisional income is $25,000 (as a single filer) or $32,000 (as a married joint filer). Provisional income is half of Social Security benefits, all taxable income, and some nontaxable income.

Seniors have a full retirement age (FRA) when they can claim their standard benefits. It's between 66 and 2 months and 67 and is determined by your birth year.

Benefits can be claimed before it, though -- as early as 62. But early filing results in a reduction in monthly checks. Unfortunately, some seniors believe their benefits will be recalculated at full retirement age if they file early. This won't happen, though.

Once a reduction in benefits results from early filing, it's locked in for life.

For many Americans, their retirement plans hinge on being able to work late into their 60s or even into their 70s. Plans for an extended career often result from concerns about having sufficient savings.

Unfortunately, it's a misconception that you can work as long as you'd like. Forced early retirement is common due to health issues, while some people end up leaving the workforce sooner than planned due to a lack of jobs for seniors.

Basing your retirement plans on a late retirement could leave you facing a lot of financial trouble if things don't work out.

The 4% rule is an easy way to set a safe withdrawal rate. Theoretically, if you follow the rule and withdraw 4% of your account balance your first year and adjust upward each year by inflation, you won't run out of money.

Unfortunately, this rule no longer holds true because of factors such as longer lifespans and gloomier projections on future returns. If you're anticipating that your retirement nest egg will definitely last if you follow the 4% rule, you should probably rethink that assumption.

ALSO READ: Retirement Investors: Why It's Time to Stop Using the 4% Rule

Many future retirees make their retirement plans with the assumption they'll need to replace around 80% of their preretirement earnings.

Unfortunately, for many people, the idea that spending will fall so much ends up being a major misconception. A substantial number of seniors spend the same or more after leaving the workforce as they did while they were still on the job.

It's better to plan a higher replacement rate since you'll be a lot happier if you have extra cash rather than too little.

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When deciding what retirement investment accounts to use, it's important to carefully consider whether your tax rate is likely to go up or down in your later years.

If you anticipate being taxed at a lower rate later, it can be better to invest in traditional 401(k) or IRA accounts. That's because these provide up-front tax savings in the year of contributions, deferring the time you'll pay taxes until you're a senior.

But if you think your taxes will go up, Roth accounts may be the right choice. In these accounts, you invest with after-tax dollars, but can make tax-free withdrawals.

It's a common myth that tax rates will necessarily fall, but based on historical levels of taxation and the rising level of government spending, this may end up being a misconception for a lot of people.

If you're anticipating all your health needs will be taken care of by Medicare, you've fallen for one of the most dangerous retirement myths.

Medicare actually has lots of coverage gaps, with no coverage for essentials such as dental care and hearing aids. It also has premiums to pay and coinsurance costs.

When making retirement plans, anticipate that you'll need thousands of dollars per year for healthcare to avoid falling short.

ALSO READ: 4 Medicare Secrets That Could Ruin Your Retirement

As you age, the chances you'll need nursing home care or home healthcare increase. Unfortunately, if you're counting on the government to pay for these costs, you may be sorely disappointed.

Medicare provides no coverage for routine nursing care. And, while Medicaid does pay for nursing homes, it does so only after you've impoverished yourself by spending down assets.

You'll want to have a plan in place for covering nursing home costs, which could include buying long-term care insurance.

Far too many people think of an emergency fund as something they need only when they're working in case of a job loss.

But, the reality is, emergencies happen even to retirees and you don't want to have to make a large withdrawal from your investment account to cover them.

Even as a senior, it's important to have an emergency savings account with three to six months of living expenses saved in it in case things go wrong.

Finally, it's a common misconception that seniors shouldn't be invested in stocks because the market is too volatile and they may not have time to wait for a recovery after a crash.

Unfortunately, investing too conservatively can have consequences as earning low returns could reduce the chances your nest egg will last.

It's important to make a careful plan with regards to asset allocation and keep some of your portfolio in the market even as a retiree.

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Now you know the truth about some common retirement misconceptions so you can be better prepared for your future.

Understanding the realities of Social Security, retirement saving, spending, and taxes can help you to ensure you've invested enough and that you're fully prepared to support yourself after leaving the working world.

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