Watch Out for These 6 Retirement Myths
Making financial preparations for retirement can seem overwhelming, especially with the overwhelming amount of information available to help you with this task. It can be difficult to figure out whose advice you should follow and what strategies would best align with your financial goals. The abundance of information might actually stop you in your tracks and limit the amount you save for retirement. Don’t let these six common myths sidetrack you from a successful retirement:
Myth #1: You Can Choose When To Retire
Just like you might not always be able to choose what you will have for dinner, you might not be able to choose when you retire. A sudden health issue might limit your ability to work full-time or make it impossible for you to work at all. A change in company objectives might mean you receive an early retirement package that is non-negotiable. Your parents might need additional support which makes it difficult for you to continue working. Many life events are unpredictable — and they could limit your retirement options.
Myth #2: Transition is Easy
You might be thinking that once you retire, you will have so much more time to do all the things you have been putting off – like going to a Broadway musical, playing pickleball or visiting all the national parks. However, when you do retire, you realize you have no one to share these experiences with because your family and friends are still working. Or, you cross everything off your list within a few months and you don’t know what to do next. It could be difficult to transition from having a regular paycheck to having to take distributions from your retirement accounts. Where will the money come from? How much can you take? What are the tax consequences?
Myth #3: Lower Taxes
We don’t know for certain if taxes will be higher or lower in retirement. There could be a change in the tax brackets which increase your tax liability. You might have a large, unplanned disbursement from a tax-deferred retirement account that significantly increases your tax burden. You may no longer be eligible for a tax credit or deduction. For example, if your kids have left home, you are no longer supporting them. That means you can no longer claim them as a dependent on your tax return. Another scenario might be that your spouse dies and you need to file a single tax return instead of a joint return, but your total income does not decrease significantly.
Myth #4: You Will Spend Less
This could be true or false, and it can vary from year to year. You might be able to reduce or eliminate some costs prior to retiring — such as paying off your mortgage or no longer supporting children — but other expenses could replace those. What if you decide to travel overseas during your first year of retirement and incur substantial expenses? Then, the next year, things are quiet and you find ways to cut costs. However, the year after that, you have some dental work done and need hearing aids. Once again, these could be substantial unplanned expenses. The point is, your expenses can change significantly over time, so how would you pay for the higher years if your investments have market exposure and could go up or down at the same time as well?
Myth #5: You Won’t Move During Retirement
Many people work toward paying off their mortgage so they can enter retirement debt free. The goal might be to live in your forever home until you die. But plans can change for many reasons. You might decide to live closer to your grandchildren. You might develop a chronic illness requiring medical assistance and you may no longer be able to walk up and down the stairs. Maybe you can no longer keep up with the maintenance of your home. You can no longer cut the grass, shovel the snow or keep every room clean. The house becomes too big and too much for you to handle, so you need to move somewhere else. You’ll now have monthly rent for a senior apartment or assisted living facility that you hadn’t planned on.
Myth #6: A Short Lifespan
It is common to base your expectations on your own experiences in life. If your parents passed away in their early 50s or 60s, you might expect to die around that same age. This could limit your financial longevity. With advances in medicine, safer work conditions and an increased focus on mental health, we might see increases in longevity. You could be planning for a retirement of only 10 years but end up living an additional 30 years. And, if this is the case, you could possibly outlive your assets. Imagine having to fund your lifestyle in retirement with only your Social Security benefits.
These myths and many others tend to prevent people from properly planning for their goals in retirement and could leave them will little to no assets. However, now that these myths have been exposed, you can start to plan around these scenarios and better prepare yourself for a successful, rewarding and long retirement — and accomplish everything on your bucket list.
Savant Wealth Management is a Registered Investment Advisor. This is intended for informational purposes only and should not be construed as personalized financial advice.
Anne M. Mank
Director of Financial Planning