Financial myths can make it difficult to plan your retirement — and then stick to that plan. When mapping out your retirement years, it’s critical to have the right information and to know the retirement planning mistakes to avoid.
Here are six common retirement myths dispelled:
Myth #1: I don’t need to revisit my withdrawal rate
Historically, a general rule has been that a properly diversified portfolio could last 30 years with withdrawals of 4% or less and annual increases to match the rate of infation.1
However, there isn’t a one-size-fits-all number. Figuring out the best retirement plan and withdrawal strategy should take into account your current finances, future income, goals and other considerations unique to you. What's more, your plan and withdrawal rate may change as your circumstances change.
Consider these approaches:
- If you’ve recently retired or are nearing retirement: Regularly review withdrawal rates. This is a smart way to keep an eye on how current stock prices and the rate of inflation may impact returns in your investment portfolio. The ability to adjust your retirement income level based on market conditions and your circumstances can help you address uncertainty or the unexpected.
- If you’re young or mid-career: Planning for a 3% to 4% withdrawal rate may be reasonable over the long term.
How we can help: Because we know the details of your unique situation, we can recommend a personalized withdrawal strategy and then continue to monitor your rate to ensure it’s the right number for you.
Myth #2: Medicare will cover all health care costs
A common retirement planning myth is that Medicare will be enough for any and all future healthcare costs. Medicare is a valuable program for many retirees, but it wasn’t designed to cover everything. For example, deductibles and copayments (which can be significant), as well as the cost of care for dental, vision and hearing conditions are not covered. In addition, coverage for nursing home and other long-term care is limited.
Consider the solutions:
Medicare supplement insurance (Medigap)
Medicare Advantage plans
Living benefits rider
From a private issuer
Can help fund remaining copayments, coinsurance and deductibles
From private companies who contract with Medicare
Can provide all your Part A and B benefits (excluding hospice); many plans also offer prescription drug coverage
Part of a life insurance policy or annuity contract
Can enable you to advance part of the policy benefit to pay for expenses if you’re diagnosed with a life-threatening illness
Combines life insurance with long-term care benefits
May help you pay for the costs of a nursing home, assisted living or in-home care; can be more affordable than traditional long-term care policies
How we can help: We will factor in anticipated health care expenses and recommend solutions to help you prepare for these costs in retirement.
Myth #3: Social Security won’t last
Though the solvency of the Social Security program is an ongoing topic of conversation, if you’re in or nearing retirement, it is not likely to materially affect you.
Adjustments made to Social Security in 1983 have done a lot to improve the program's long-term viability; and changes (if any) will likely be gradual and phased in over time.
Keep in mind that Social Security alone cannot provide enough income for most individuals.
How we can help: We will work with you to estimate your social security benefits as part of your overall retirement planning and budget. We can also help you build additional flexibility into your personalized retirement income plan and potentially recommend solutions for guaranteed income in retirement, if appropriate for your situation.
Myth #4: I can work for as long as I need to
Longer life spans may mean more years in retirement and possibly more years working past age 65. However, given the uncertainties of aging, it may not be realistic to expect to work as long as you need or want to. For example, half of all early retirements are due to illness or disability.
How we can help: We can help you develop a personalized retirement planning and income strategy, including solutions to help shield your assets against the unexpected — like retiring earlier than planned.
Myth #5: I’ll spend less (and pay less taxes)
Depending on your goals, you may be spending more in retirement than you thought you would, especially if you are travelling, visiting children and grandchildren and pursuing new hobbies and activities. Additionally, inflation can erode your purchasing power over time.
Another related misconception is that you'll pay less in taxes once you're retired. But that assumes you'll have less income. If you end up with the same amount of income in retirement as you had when you were working, you may not be in a lower tax bracket. Also, you may qualify for fewer tax breaks such as mortgage and college savings deductions. Tax rates may also rise in the future.
How we can help: We can help you develop a budget for retirement and recommend a tax-efficient, retirement-income strategy specific to your situation.
Myth #6: I'll live in the same place throughout my retirement
You may think that by the time you retire, your mortgage will be paid off and your housing costs will be set. However, moving is often a reality during the retirement years. For instance, you may decide to move closer to family members or into an urban area for the culture and convenience. You may find you need an assisted living situation or a community with more transportation and maintenance services at hand.
How we can help: We can help assess your individual situation and recommend ways you can prepare for unexpected moving costs in retirement.
We’re here to help with your retirement planning needs
You’ve worked hard to save for retirement — and deserve to enjoy it with more confidence. As you plan for these years, know you can lean on us for personalized advice based on your goals and needs.