Debunking 7 Common Misconceptions About Retirement

Conventional retirement savings advice can lead you astray. Instead of following the standard financial advice, buck the conventional and find financial freedom in retirement.

Misconception #1: I’ll die before I am 90 so I should use that as my planning age.

According to the life insurance industry, one-quarter of 65-year-old men in average health will live to age 93 and women will live to 96. Your retirement plan should show what happens if you live too long.

Misconception #2: Medicare will take care of healthcare costs in retirement.

Typically, Medicare pays a little more than half of a retiree’s medical bills. Average out-of-pocket expenses in retirement are around $5,400. Medicare generally does not cover long-term care. Most of the cost comes out of your pocket unless you have long-term care insurance.

Misconception #3: A conservative portfolio is appropriate for me in retirement.

For retirees facing 30-plus years of retirement, a no-risk portfolio of bonds and CDs is very risky because inflation erodes the purchasing power of this type of portfolio. Just look at the way the price of groceries has risen in the last 10 years. Unless you are extraordinarily wealthy, retirees should invest a portion of their portfolio in equities.

Misconception #4: It’s best if I claim Social Security benefits at age 62.

Claiming Social Security early can be a costly move. Based on life expectancy, claiming at age 62 means you have a 90% chance of failing to get the highest lifetime Social Security benefits.

Misconception #5: I’ll remain healthy enough in retirement to make financial decisions myself.

As we age most people begin to have memory problems and decision-making becomes more difficult. Scam artists focus on the elderly because they are easiest to confuse. Retirees should seek help from an advisor to manage money in retirement before they become ill or their decision-making ability begins to decline.    

Misconception #6: My taxes will be low in retirement.

If retirees need as much income as they did during their working years to maintain their lifestyle, it is not realistic to think that their tax burden will be less. Keep in mind that distributions from most retirement plans are fully taxable as ordinary income. Tax rates are now at the lowest level in decades and many in Congress are proposing raising tax rates.  

Misconception #7: I can safely withdraw 4 percent of my assets annually and not run out of money.

The “4% Rule” is not infallible. A retirement plan should include projections that show what would happen if your investment results don’t meet your expectations. This is especially important if market losses occur around the time you retire.

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