Retirement concerns are common now, with more people waiting until they are older to start saving or facing financial emergencies that require removing money from retirement savings. Retirement fears can be frightening, but there are many ways to stop retirement saving from scaring you. In addition to common fears, many people have a retirement plan, but they ruin it by making avoidable mistakes.
If you want to have enough savings for retirement, try to start young and avoid common savings pitfalls by having an emergency fund and by prioritizing your retirement. Although more people are now choosing to work at least part-time after they retire, if you plan carefully, you can make that decision based on what you want to do, not what you financially need to do. First, though, you need to know the truth about five common retirement myths.
1. You need a specific set percentage of your current income to retire comfortably
Although many financial experts suggest that you save enough to retire with at least 80 percent of your current income, there really isn’t a set number. You can certainly get a good idea of how much money you will need by using a Retirement Calculator, but the numbers won’t be perfect. You should calculate your necessary post-retirement income by anticipated costs, not by your current lifestyle. By the time you retire, you may already have paid off your house, and you might even live in a smaller house.
There is also no magic number that will get you set for retirement. Because the worth of money can go down at any point, $800,000 won’t be worth the same when you retire as it is now. So although you may not need a specific amount, you are always better off saving as much as possible. If you save more than you need, that really seems like a good problem to have.
2. You can depend on Social Security
Even if you do get Social Security when you retire, you will still need some of your income to live comfortably. Social Security benefits are also unstable, with many people wondering if there will even be Social Security by the time they retire.
Although Social Security benefits are most likely here to stay, the amount paid out or the eligibility age could both change. Either way, you should not depend solely or even primarily on Social Security benefits for when you retire. Currently, Social Security benefits represent 38 percent of the income for the elderly. In 2014, more than 59 million Americans will receive Social Security, but the average benefit for retired workers is only $1,294, which is hardly enough for most people to retire on.
In addition, don’t assume Medicare will cover everything, either. Take care of your health now, and include medical expenses in your budget when you plan for retirement.
3. Retirement doesn’t have to be your priority
Well, it doesn’t have to be your priority, but it usually should be. If you have debt with a very high interest rate, you certainly should try to pay that off quickly. However, once you have an emergency fund and basic savings, retirement savings should take priority. While saving for a fancy car or amazing vacation sounds tempting, those expenses should come after retirement savings, unless you make enough to save enough for both.
There are many things to consider when saving for your children’s college tuition, but in the end, your retirement is more important. Many students do graduate with debt, which is unfortunate, but teaching your kids to value their education and work for it is more important than saving your money to help them instead of saving for retirement. If you can do both, great; if not, put your money away toward retirement.
4. The safer your money, the better
While it’s true that your money will be safe in a CD, bonds, or a savings account, in theory, you will make little interest, which won’t really help your retirement. Being safe is a popular way to save for retirement, but it often isn’t a very lucrative way. You are better off diversifying your investments as much as possible. Meanwhile, you can still be careful about your investments.
If you are uncomfortable picking stocks yourself, you can hire someone to manage your portfolio, although you will save money by doing it yourself (the tradeoff is that you might make more money if you hire someone). Some people prefer to invest through home ownership, becoming a landlord, investing in companies, or purchasing unique and sought-after items (like expensive artwork). However, even these investments see their ups and downs.
5. Other myths
Certain states have a reputation for being retiree friendly. Alaska, Florida, Nevada, South Dakota, Texas, and Washington all have no income tax, but many of the states have high property or sales taxes, or a high cost of living; therefore, you can’t plan to have extra money by moving to a different state. Another myth is the idea that you won’t need retirement for that long because you plan to work part-time or you plan to retire later in life — but this myth doesn’t factor in the truth that life happens, and you can’t predict the future. Plus, people are living longer lives now.
If you are hoping your kids or family members will take care of you, you could also be facing a harsh reality. Although many family members want to help, they, too, face unexpected expenses and trials, so you need to plan for medical and financial needs without depending on the help of others.