Retirement is arguably one of the most popular topics in the personal finance world. There is a glut of information about when to start saving, what the best strategies are, and how much you’ll need. If you do a simple search on the topic of retirement calculators, you’ll have plenty of options to choose from!
Unfortunately, a lot of the advice can be contradictory or overwhelming, or even flat-out wrong. We are told that we need X amount for a 20-year retirement, or that we should contribute X amount to our 401(k). The experts tell us to pay off all of our debt but make sure we have enough liquidity for emergencies. There’s plenty of helpful information available, but how do you separate the correct information from the misconceptions that could derail your retirement? Here are three popular retirement misconceptions to avoid.
This one seems true on the surface, which is how it gets you. You may think that you won’t have a mortgage in retirement or that you won’t be paying off debt like you are now. You won’t be supporting your kids and you may even be able to get away with having one car. And while your expenses will change, that doesn’t mean you’ll have fewer expenses (or that they’ll change overnight). For example, if you choose to relocate or even downsize, there will be temporary surges in your spending. Or, if you face serious health issues, your medical costs will increase.
The key takeaway here is to create a retirement saving and spending plan specific to your lifestyle and your needs. While the general rule of thumb is that you’ll need 70-80% of your pre-retirement income to live on in retirement, that number may be more or less for you. Work with a professional to create a customized strategy so you don’t fall prey to this misconception and spend your retirement worrying about making your money last.
Many people wait to save until they are earning a higher income. While you may have more disposable income to put into your nest egg, remember that it takes decades to save for retirement. If you wait to start saving until you make more money, you’ll have to save even more of your salary to make up for those lost years. Thanks to compound interest, the earlier you start, even if it’s not much, the better.
Did you know that the Social Security program was designed to replace 40% of an average worker’s wages? In other words, you’re going to need more than just Social Security to get through retirement. In 2019, the average retiree on Social Security collected $1,471 a month, or $17,652 for the year. I don’t think too many of us are planning to live on under $20,000 a year in our golden years. That’s why you need to spend your working years building other retirement income sources, whether that’s your company 401(k), an IRA or Roth IRA, or a separate investment account. Instead of crossing your fingers and hoping it all works out, create a realistic retirement budget, then work backward to calculate how much you need to save to get there. And be sure to work with a professional who can help you maximize your Social Security benefits so you get every penny that’s rightfully yours.
Our goal at Point Wealth Management is to help those who are planning for retirement develop a personalized financial plan to take command of their wealth. We work hard to educate you on your opportunities, answer your questions, and offer objective guidance.
If you are preparing for retirement and want to partner with someone who is passionate about helping you maximize your money and pursue your ideal retirement, I am here to help you and point you in the right direction. Would you like help to find out what path your current plan is on? Schedule a call and meet me virtually.