5 Retirement Myths That Could Cost You $100,000
Written by
Daisy Carrington
Edited by
Amen Oyiboke
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Planning for retirement is supposed to bring peace of mind. You set aside money in your 401(k), you pay into Social Security, and you trust that Medicare will be there when you need it. But even careful savers can fall prey to costly misconceptions that quietly chip away at their future income.
According to Lisa Cummings, estate planning attorney and executive vice president at Cummings & Cummings Law, a handful of retirement myths can cost retirees hundreds of thousands of dollars over time. From taking Social Security too early to misunderstanding Medicare’s limits, she explains the most common missteps she sees, and how to avoid them.
You Can Withdraw Social Security Early While Working
“I think the biggest myth is, ‘I’m tired of working, I’ll just start drawing my Social Security at age 62,'” said Cummings. “By taking that early payment, they’re locking themselves into a lower monthly benefit for the rest of their lives.”
She explained that claiming before full retirement age — which is 67 for anyone born in 1960 or later — reduces monthly benefits and can trigger earnings limits.
“Until an individual reaches normal retirement age, Social Security limits the amount of income they can earn while receiving benefits,” she said. “If they earn more than that limit, their Social Security stops.”
The difference adds up quickly and can cost retirees anything between $120,000 and $300,000 over their lifetime. She advises retirees to wait until the normal retirement age to start collecting Social Security.
You Should Withdraw 4% From Your Retirement Every Year
The “4% rule” is often treated as a hard and fast guideline, but Cummings said it was only ever meant as a rough estimate.
“It’s not built in for market fluctuations,” said Cummings. “Pretend you get through ten years of high inflation — your purchasing power is going to drop.”
She recommends retirees adjust their withdrawals to keep in line with inflation and market changes and annually monitor their portfolios so they understand where their finances stand.
Most Retirement Plans Charge Similar Fees
When it comes to fees, not all plans are created equal, said Cummings. Some mutual funds might charge 1% of the total investment in the fund — or more. Most 401(k) plans, by comparison, only charge a .5% fee. That difference can add up to major losses over time.
“Even a difference of 1% annually could reduce a nest egg by up to $100,000 over a period of 25 years,” she said.
Her advice: Compare mutual funds that invest in the same types of assets. “Look over a 5- to 10-year period to see how those funds performed, and also compare their investment fee ratios,” she said. “That gives you a better picture of whether that fee is justified.”
It Doesn’t Matter When You Enroll in Medicare
Many retirees think that so long as they enroll in Medicare Part B once they hit 65, they won’t end up facing penalties. This is inaccurate, said Cummings, who noted retirees have a narrow six-month window — three months before and after that 65th birthday — to enroll. Those who miss that window can be subjected to penalties that last a lifetime.
“There’s a 10% increase on the standard Part B premium for each 12-month period delayed,” she said. “So even if the base amount is $185, if you didn’t enroll until age 67, instead of paying $185 a month, you might be paying $224 a month for the rest of your life.”
The penalties can total thousands over time.
She emphasized the importance of checking whether your health plan counts as creditable coverage before you turn 65. “As long as that plan meets the minimum requirements, it’s considered creditable coverage,” she said. “But COBRA doesn’t count. As soon as you leave your job, you need to get enrolled in Part B pretty quickly.”
Long-Term Care Is Covered By Medicare
Finally, Cummings said one of the biggest and most expensive misunderstandings is assuming that Medicare will cover long-term care. “That’s absolutely false,” she said. “Medicare does not pay for long-term care.”
She recommended looking into long-term care insurance while you’re still in good health. “Determine if, while you’re in your younger years and still in good health, you can find coverage,” she said. “It’s something to think about early.”
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