This post was contributed by Jan Elliott, author of Faith Full Retirement.
Take Action to Bust Through Financial Retirement Myths
Myth #1 – Believing you only need a retirement plan for 15 to 20 years.
The reality is that boomers are living longer than prior generations. With expected longevity, both men and women need to extend their retirement plan by 5 to 10 years, to create a 20 to 30 year retirement plan.
Myth #2 – Believing you only need 80% of your current salary when you retire.
Expenses over retirement have a tendency to multiply. Boston College did a study that showed people retirement will need an additional $4,000 per year just to cover additional medical costs, since Medicare is not all-inclusive. Other unexpected costs might include travel and recreation expenses, especially in early retirement years. Other retirement expenses might include family weddings and financial gifts to adult children, which can even push a retiree into a higher tax bracket, if they withdraw non-tax-exempt funds.
Myth #3 – Medicare is all-inclusive.
Most retirees quickly realize that Medicare, while a blessing, is not all-inclusive, and they need to pay out-of-pocket medical expenses for copays, prescription drugs, dental, vision, and hearing exams. The costs of eyeglasses, hearing aids, and hearing aid maintenance can be significant for retirees.
Myth #4 – Believing you’ll be safe with the 4% rule of past generations
E.g., withdrawing 4% of retirement funds each year for retirement income. Since many retirees want to expand their lifestyle and they will live longer than past generations, this rule no longer applies. Today’s retirees will need more savings and investments to sustain them for a longer time, so their nest egg can weather market and inflation fluctuations.
Myth #5 – Believing all will be ok if you work longer.
Although about 2/3 of employees state they plan to work longer than normal retirement age in their current position, in fact, only about 1/3 of them do work past their normal retirement date. Some people are forced into early retirement, if their positions are eliminated so their employers can cut back staff or hire a less expensive workforce.
Myth-Busting Strategies: These myths need to be replaced with myth-busting action steps:
To bust Myth #1, accept the fact that, due to the longevity trend, you need a 20 to 30 year retirement plan. This plan is not only a financial plan; it must include a vision for your ideal retirement life based on your core values, passion, and purpose, including your goals for health and wellness, relationships, social networks, and spiritual growth.
To tackle Myth #2, you must eliminate all debt, track your expenses, and calculate what income you will need to cover all your expenses in retirement. By understanding how every penny is spent before retirement, you can do a much better job of predicting what your planned retirement lifestyle will cost you.
To prepare for retired life with Medicare, address Myth #3 by researching what your social security benefits will be and then estimate your annual co-pays, dental, vision, and hearing medical expenses.
Obtain the best financial advice you can find to make sure you don’t enter your retirement years under the misconception of Myth #4, believing the 4% rule that worked for past generations. It is not a safe assumption for your future financial needs.
Many employees have learned they can’t work beyond normal retirement age, as Myth #5 led them to think, because companies continue to downsize and force early retirements. Know this could happen to you. Be on alert for entrepreneurial opportunities that will provide you with extra retirement income.