From Millennials who seem to never save for retirement to Boomers who are now wondering if what they’ve saved will be enough, retirement seems to be a never ending topic of worry and anxiety for most. Below are five of the top misconceptions regarding retirement and how to be more prepared when your time comes.
- I will just continue to work when I’m “retired”
Many Americans believe that even when they “retire” from their full-time roles, they will continue to work at least part-time, whether for financial reasons or simply to stay active and social. However, the reality of that idea is actually somewhat slim. In fact, about 79% of workers polled by the Employee Benefit Research Institute said their plan is to work for pay during retirement. The actual percentage of those who work in retirement? Around 29%. Although many plan to work, life and the workforce may look drastically different when retirement comes, so it’s better to be prepared rather than assume the money will continue to flow.
- Social Security is going bankrupt, so I cannot count on the system
While it’s safe to say there is plenty that could be done to improve the Social Security system, it seems many in the workforce believe the future of our government retirement system is significantly worse than it is. Even if the government takes no steps to repair the financial situation of Social Security, the system will continue collecting payroll-tax income and other revenue to pay beneficiaries most of their benefits for decades. According to a report by Social Security trustees, after the year 2034, the system would only have enough funding to pay 77% of scheduled benefits. So, while most beneficiaries would need to adjust their spending, they would only need to calculate a 23% differential, not a complete loss.
- My Social Security benefits won’t be taxed
Unfortunately, this is not entirely true since the Social Security Administration does in fact levy taxes on those receiving benefits, namely those who are bringing in other income. For retired singles who make more than $25,000 annually (outside of their SS benefits) and couples who make more than $32,000, they could be taxed up to 50% of their benefits. Singles making more than $34,000 annually and married couples making more than $44,000 could see up to 85% of their benefits taxed. Thus, you may want to consider the financial value of working during retirement, as limiting your income could actually be more profitable.
- I’ll invest more in cash than stocks for my long-term strategy
When surveyed about the best assets to invest in for 10-plus years, most Americans responded with cash or real estate rather than stocks, bonds or gold/precious metals. While real estate is certainly not a poor long-term investment, cash holdings, like money-market accounts, only yield dividends that are on pace with inflation at the time, which is anything but reliable. Stocks statistically offer higher, more significant dividends, but many individuals avoid them out of sheer lack of knowledge of the market. Therefore, consider doing your homework, or working with a reliable financial advisor before you assume that cash holdings are your best bet.
- I can make up for my lack of retirement planning early on by saving more in the final years
When questioned about which strategy would be most effective in “making up time” for retirement planning, most Americans answered they would save 3% more of their salary in the last five years leading up to retirement, over working for two more years or delaying Social Security benefits for two years. Unfortunately, this is actually the least effective method when comparing the three, so you may want to consider a few extra years in the workforce if you are able, or at least considering holding off on those benefits.
Although it is virtually impossible to prepare for everything that may come up during retirement, it is possible to be educated and avoid common pitfalls. So before you jump right into that part-time role, or you hold off on saving now in lieu of saving more later, or you start right in on receiving Social Security benefits, consider speaking with a financial advisor to determine a plan that makes the most sense for you and will help you feel secure when the big “R” rolls around.
