5 Myths & Misconceptions about Retirement Income Planning
You think that you have a sound strategy in place for financial security in your golden years, but you could be basing your retirement income on false assumptions. There could be an unpleasant surprise down the road if a faulty financial plan lulled you into a sense of security and left you scrambling to make last-minute adjustments.
Some of the common myths and misconceptions about retirement income planning.
1. Social Security will provide all the income I need for retirement. Many people are convinced that Social Security will be bankrupt and no longer in existence by the time they retire. Social Security was designed as a way to supplement retirement, but was not intended to replace all previously earned income.
2. My living expenses will be much lower when I retire. For most retirees, this is simply not true. Although expenses associated with working or commuting will be eliminated, they will be replaced with other expenses such as travel, hobbies, or dining out. Even if your mortgage is paid off by the time you retire, inflation will have a major impact on the cost of maintenance, taxes, and insurance. Retirees can expect to spend a large chunk of their income on medical expenses. Medicare does not cover all medical expenses or deductibles for health care such as lab test or certain types of therapy. Supplemental insurance might be necessary for out-of-pocket expenses such as dental care that was previously covered through an employer-sponsored group health plan.
3. I can always sell my house and live off the money from that. In today’s volatile real estate market, it could take a long time to sell your house. If you decide to rent, you will lose the tax advantages of owning a home. You cannot automatically assume you will be better off financially by selling your home.
4. I cannot afford to save much right now for retirement, but I will be able to catch up later. The odds are against being able to make up for lost time when it comes to retirement savings. You lose the benefits of compounding your savings if you delay. Life circumstances can change, and you might run into unexpected situations such as health problems, divorce, or disability that drain your income and prevent you from saving as much as you had planned.
5. Things will work out in the end. Unfortunately, if you leave your retirement income up to chance or procrastinate in making solid plans, it may not have a happy ending. Common wisdom states that your current company pension plus Social Security will cover most of your expenses in retirement, but that can lead to a serious shortfall in income.
Only you know what you need to reach your goal of financial security and a comfortable retirement income. The bottom line: A secure retirement is your responsibility.
