Breaking down 5 common retirement myths


Asian senior man drinking coffee and looking out window.
  • Financial myths can make it difficult to plan your retirement — and stick to that plan.
  • Insights from your advisor can be critical for retirement planning.
  • There are common myths about withdrawal rates, Medicare, Social Security, how long you’ll work and your anticipated spending habits.

When planning for retirement, it’s important to have the right information. And it’s important to be able to discern fact from myth. Your Ameriprise advisor provides personalized advice to help you achieve your financial goals. Here are five common myths dispelled:

 

Myth #1: I don’t need to revisit my withdrawal rate

Planning a retirement income stream to last several decades can be challenging. Historically, a rule of thumb 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, continued low interest rates and elevated stock market valuations present challenges to that assumption in some situations. To stay informed, consider these approaches:

  • If you’ve recently retired or are nearing retirement, regularly review withdrawal rates with your advisor. 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 a reasonable approach over the long term. Your advisor knows your situation best and will recommend a strategy based on your goals and needs.

 

Myth #2: Medicare will cover all of my health care costs

Medicare is a valuable program for many retirees, but it was not 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.

Your advisor will factor in anticipated health care expenses and recommend solutions to help you prepare for these costs in retirement. Here are additional solutions to consider:

  • Medicare Supplement Insurance (Medigap) from a private issuer can help fund remaining copayments, coinsurance and deductibles.
  • Medicare Advantage plans from private companies who contract with Medicare provide all of your Part A and B benefits, excluding hospice. Many plans offer prescription drug coverage.
  • A living benefits rider on 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.
  • Hybrid policies that combine life insurance with long-term care benefits may help you pay for the costs of a nursing home, assisted living or in-home care. In general, these hybrid policies may be more affordable than traditional long-term care policies.

 

Myth #3: The Social Security program won’t last

Though the financial status of the Social Security program is an ongoing topic of conversation, if you’re in or nearing retirement Social Security solvency is not likely to materially affect you.

The Social Security Board of Trustees forecasts that as currently structured, financial reserves should be able to pay full benefits until 2034, decreasing to 76% of their prior level of benefits after that time.2

Potential changes to Social Security eligibility could address the shortfall — but any changes to the program would likely be gradual and phased in over time. Ameriprise closely monitors new developments that may impact eligibility or benefits.

Keep in mind that Social Security alone cannot provide enough income for most individuals. That’s why savings vehicles like 401(k) accounts and other solutions could be part of retirement recommendations from your advisor. However, if you are concerned about the uncertainty of Social Security retirement benefits, your advisor can help you build additional flexibility into your personalized retirement income plan. They can also recommend solutions for guaranteed income in retirement, if appropriate for your situation.

 

Myth #4: I can work as long as I need to

Given the uncertainties of aging, it may not be realistic to expect to work as long as you need to. For example:

  • The Financial Priorities study from Ameriprise revealed that 7% of respondents retired sooner than anticipated due to the pandemic. An additional 11% plan to retire sooner than expected.3
  • More than one in four of today’s 20-year-olds will become disabled before age 67.4
  • Almost 70% of people over 65 will need long-term care at some point.5

Your advisor will work with you to develop a retirement planning and income strategy that’s appropriate for your financial goals and needs, including solutions to help protect your assets against the unexpected — like retiring earlier than planned.

 

Myth #5: I’ll spend less in retirement

It may seem logical that your expenses could be lower after you retire. But that assumption could be inaccurate and problematic over the long term. For example:

  • Overspending can occur. Added free time to socialize and pursue interests can lead to overspending. For example, it may be tempting to increase spending on expensive hobbies or take more trips. Consider developing a budget to help you cover essential needs first, and then create a budget for lifestyle spending. You can work with your financial advisor to adjust both as needed.
  • Inflation adds up. The Federal Reserve targets a 2% inflation rate each year, which adds up over time. In 2021, higher inflation is forecasted, but is expected to be temporary. To avoid a potential impact to your standard of living over time, consider what your monthly expenses could be in the future.

To help protect your income and purchasing power over time, your advisor will provide investment recommendations and a retirement-income strategy specific to your situation.

 

Check in with your advisor

Lean on your Ameriprise financial advisor for personalized advice based on your goals and needs.