4 Ways To Avoid Misconceptions About Retirement Planning, According to Experts

Misinformation is the enemy of planning — especially when you’re planning for your future financial security. If retirement urban legend is clouding your judgment, you won’t be able to decide the right time to retire, how much to save, plan for taxes, schedule withdrawals and calculate how to pay your bills and fund your lifestyle.

GOBankingRates spoke with experts who outlined four common planning misconceptions that have foiled countless retirements before they had a chance to thrive. Here’s a look at the misconceptions you need to avoid and the best ways to avoid them.

Conventional wisdom says that you’ll need only 70% to 80% of your pre-retirement income to retire comfortably.

While that might be a helpful starting point, the so-called 80% rule makes presumptions about variables that change with every retirement and may or may not reflect reality based on factors like your debt, tax obligations, medical expenses, family situation, if you have a mortgage and how much you owe on it.

Don’t base your unique and all-important income requirements and spending plan on one-size-fits-all retirement “rules” that financial influencers spout as gospel.

“Realistic income expectations are important,” said Bill Boersma, founder of OC Consulting Group, a fee-based life insurance consulting practice that serves and works with trustees, CPAs, attorneys, non-profits, family offices and advisors. “Many believe they’ll spend less in retirement, but costs often remain unchanged — only the sources of income dwindle.”

For many adults of all ages, insurance coverage is something you set up once and put on autopay so you can finally be done worrying about it. While worrying is probably unnecessary, turning out is always imprudent and often costly — especially for retirees.

“A major misconception is that insurance policies are set it and forget it,” said Boersma. “In reality, periodic reviews and adjustments are critical as needs, risks and product features change over time. What worked at age 65 may be irrelevant or even counterproductive at 85. Constant monitoring and a willingness to make changes is key.”

One of the most destructive retirement misconceptions is the assumption that medical expenses will remain manageable. 

“Healthcare costs are frequently underestimated in retirement planning,” said Boersma.

For example, the Fidelity 2023 Retiree Health Care Cost Estimate survey found that most people expected a couple to spend just $41,000 on healthcare in retirement when the real cost was actually $157,500 for the average 65-year-old who retired in 2022.

Many people also have unrealistic expectations about Medicare, which further drives the tendency to underestimate healthcare costs.

Medicare Part A is usually free but can cost up to $505 per month. It comes with a $1,632 deductible, and extended inpatient stays aren’t covered. Part B costs $174.70 per month and up, depending on your income, and comes with deductibles and copays for many services and treatments. Medicare Advantage (Part C) and Part D plans vary in price, have different out-of-pocket-cost totals, and premiums can rise every year.

“Even with Medicare, out-of-pocket costs can top $300,000 for a retired couple,” said Boersma.

An over-reliance on Social Security is just as dangerous and just as common as betting too big on Medicare.

“Another widespread misperception is that Social Security will take care of everything,” said Andrew Gosselin, CPA, personal finance expert and senior contributor at The Calculator Site. “In reality, it’s merely supposed to complement it.”

Like all the other pitfalls, the best strategy for avoiding a bad outcome will vary by retiree.

“Consider a client who believed they could live off of Social Security and their pension alone,” said Gosselin. “We discovered significant holes in their plan, particularly in the areas of living expenses and healthcare. We optimized their retirement income by reassessing their investments and establishing a more calculated withdrawal schedule, allowing them to relish their newfound freedom from financial strain. By taking into account every situation, this proactive approach to financial planning not only helps ensure a comfortable retirement but also provides peace of mind.”