There’s plenty of useful information about retirement to be had online and from financial pundits. The problem: As these outlets are meant to reach a broad audience, they may not always apply to your specific financial situation.
Retirement planning is a perfect example. There are plenty of top 10 lists or suggestions on things you need to do to retire successfully, but they’re necessarily broad-based. This isn’t to say that the advice they offer is worthless; it just means you have to take what may be a good general suggestion and tailor it to your own needs.
I Should Use Life Expectancy as an Absolute When Planning
Life expectancy, by definition, is an estimate. For starters, no one can know with any certainty how long they will live. The life expectancy tables you may see can only be general estimates based on aggregate data.
Additionally, life expectancy changes, at least statistically, as you age. For example, no one is expected to live to age 90 when they are born; but, if you find yourself at age 92, obviously your life expectancy is greater than 90.
So, if you’re basing your retirement strategy around your life expectancy, you may find yourself coming up significantly short if you live to a long age.
I Shouldn’t Own Any Stocks After I Retire
It’s human nature to want to dial down your investment risk once you retire. After all, you’ve worked and saved your entire life for your nest egg, and a single 10% or 20% stock market correction could seriously damage your retirement prospects going forward.
The problem with this line of thinking is that your retirement might last 30 years or longer. Not only is that plenty of time for your stocks to recover, but switching your growth investments into savings accounts that pay a fraction of 1% means your retirement funds won’t even keep up with inflation.
While it’s true you shouldn’t keep your entire nest egg in aggressive stocks, moving completely out of stocks isn’t the right answer either. Talk to your financial advisor to strike the perfect blend between risk and reward for your retirement years.
Interest Rates Will Remain About the Same Throughout My Retirement
One of the difficulties in planning a retirement portfolio is making proper assumptions. If you roll over Treasury bills or CDs, for example, you may know what interest rate you’ll earn for a period of time, but that amount may rise or fall throughout your retirement.
If you’re banking on earning the amount you are now for the entire time that you’re retired, you’re likely to be wrong. The good news at this point in time, however, is that rates are near all-time lows. This means you’ll likely earn at least as much as you are now, if not more, while you’re retired.
Just be aware that interest rates are a fluctuating medium, and the rates you earn throughout your retirement are likely to change.
I Should Claim Social Security as Soon as Possible
It can be an irresistible temptation to claim Social Security at age 62, the earliest allowable time. After all, there are concerns that Social Security will eventually go away — or at least have its benefits reduced — and getting money sooner rather than later is just human nature.
But, in terms of a long-term financial plan, it’s not always the best call. Mathematically, there is a break-even point, where taking Social Security later makes more financial sense. This point varies depending on your age and when you initiate your payments, but it’s roughly around 79 years of age.
In other words, if you expect to live a long life, you’ll earn much more in lifetime payouts if you wait to claim your Social Security benefits.
Social Security Fund Will Run Out
A lot has been made in the press about the Social Security Trust Fund running out, perhaps as early as 2033. However, this doesn’t mean that Social Security is going away in 2033; it just means the reserves will be drained. Retirees will still get their payments from current workers via Social Security taxes.
Granted, this does likely mean a reduction in the amount you may receive from Social Security. Current projections estimate that, without any changes, payouts will drop to 76% of expected levels starting in 2033.
However, that still gives Congress nearly 12 years to enact changes to restore Social Security to full funding, from raising Social Security taxes to extending full retirement age. While you shouldn’t rely on Social Security to fund your whole retirement, you shouldn’t expect it to completely go away either.
I Can Always Work in Retirement If My Money Is Coming Up Short
Some pre-retirees expect to be able to work a side gig or a part-time job in retirement to fund their lifestyle, but this can be a dangerous assumption.
Many retirees are in ill health by the time they retire, and some are even forced into retirement by disability. If you’re banking your whole retirement on being physically able throughout your retirement, you might end up in a precarious financial position.
It’s always best to fund your retirement through savings and investments and have the option — but not the requirement — to work if you so desire.
I Won’t Need as Much Income in Retirement
Age-old financial advice suggests that retirees don’t need as much income as pre-retirees. In some cases, this may be true. For example, by the time you retire, you might have paid off your mortgage, the kids might be out of the house, and you might be looking forward to hanging out in your home for longer periods of time.
But you might prefer instead to travel the world, go out to eat more often and donate more money to your favorite charities. In that case, your expenses might actually go up in retirement.
Be honest about the type of lifestyle you want to lead so you can more accurately prepare for your expenses in retirement.
Social Security Benefits Are Never Taxed
Social Security often plays a big role in retirement financial planning. The Social Security Administration updates expected payouts annually on its website, so pre-retirees can get a good estimate of what they’ll be earning after they retire.
However, the amount you see on the SSA website is a gross amount, without any taxes withheld. While many Social Security beneficiaries do receive tax-free benefits, if you continue working and earn above certain thresholds, a portion of your benefits will be taxable. Be sure to check with Social Security for current income levels.
Medicare Will Cover All of My Retirement Medical Costs
Once you reach age 65, the Social Security Administration will enroll you in Medicare, which is the country’s health insurance program for older individuals.
What many retirees don’t know is that Medicare doesn’t cover every possible medical expense. Medicare Part A is hospital insurance, which primarily pays for in-facility treatment. Medicare Part B pays for services from doctors and healthcare providers, along with other limited benefits, but it requires a monthly premium, as does Medicare Part D for prescription drugs.
Even with these coverages, you may need additional private insurance for things such as co-pays or deductibles. The bottom line is that you shouldn’t rely on Medicare Part A to cover all of your medical needs in retirement.
Read More: 30 Reasons It’s Hard To Retire at 65
$1 Million Is What I Need for Retirement
The figure “$1 million” is often tossed about by financial pundits as a good retirement savings goal, and indeed it’s nice to have a seven-digit nest egg. But, in many ways, that number has been pulled out of thin air.
The truth is that retirement is a very personal thing. For some workers, $1 million in savings isn’t nearly enough for what they need; for many others, $500,000 may be more than enough.
Factors that affect your “retirement number” include where you live, what type of lifestyle you want and what other funding you have for retirement, such as a pension or Social Security payments. The bottom line is that you should calculate your own retirement needs and not rely on some generic figure that’s meant to apply to everyone.
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