Four Retirement Myths I’m Hearing
September 18, 2015Answering calls to our Financial Helpline, I’ve heard some myths or assumptions about retirement and I always enjoy hearing the buzz out there from people contemplating retirement. My thought is – if I’m hearing this from a few people, there are potentially thousands or millions who have the same thought. So, for those who believe some of these things, I’ll share some of the myths/assumptions I’ve heard recently and then give you my $.02.
Myth#1: Social Security will NOT be there for me when I retire.
My view is that in some form or fashion, Social Security should be there if you are 20 years or less away from retirement. There is no current plan to do away with Social Security. It would be political suicide for a politician to propose such a thing and if there’s one thing most politicians care about more than anything else, it’s their re-election campaign. If our national debt continues to climb ($19 trillion and rising….), we may see Congress address Social Security in the future. The most commonly discussed tweaks to Social Security are reducing the inflation adjustment, increasing the full retirement age, and means testing (reducing/eliminating benefits for the Donald Trumps and Bill Gates of the world).
For most Americans, Social Security should still be a piece of your retirement foundation. Don’t discount the importance of Social Security. If you are expecting to get $1,250/month from Social Security, that’s the rough equivalent of earning 3% interest annually on a $500,000 30-year treasury bond. I know I am not going to discount the value of what could be a large income stream and neither should you.
Myth#2: Social Security will be enough to live on.
For most people, Social Security won’t be enough. If you go to Social Security’s website and run a benefits estimate, you will be able to see (in today’s dollars) the amount of income you’d have coming your way at age 62, full retirement age (66-67 depending on your year of birth) and age 70. Most likely, you will not be able to fund a fulfilling lifestyle if Social Security is your only source of income.
Most of us will need a part time job, distributions from our retirement plans or withdrawals from our savings and investment accounts, combined with Social Security, to live the lifestyle that we want. That increases the need to save as much as possible NOW to prepare for the future. Whatever you are currently contributing to your 401k, promise (and then deliver) to increase your 401k contribution each year between now and retirement.
Myth #3: Medical insurance premiums are going to be insanely high.
In prior years, I’ve worked with employees who were on the verge of retirement and when they priced out medical insurance it was WAY expensive. $1,000-$1,500/month was not unrealistic. Last week, I had two people in the office who were contemplating retirement at the end of the year and we hopped online to price out health insurance. Because their income post-retirement would be significantly lower, they qualified for subsidies on the healthcare exchanges. One person had projected premiums of $300-$400/month and the other, with a larger pension, at $500/month.
The prices for current retirees, before age 65 when Medicare kicks in, have come down significantly in the past few years. Don’t be freaked out. Go to www.healthcare.gov and price out a policy using the assumption that your salary is gone and you’ll be living on other assets and Social Security. You may be happily surprised at the results.
Even though the costs may not be as high as you expect, you’ll still need a funding source. If you have a health savings account (HSA), increase your funding level each year until you reach the maximum funding level. Pay for your ongoing healthcare expenses from your normal checking account and allow your HSA balance to grow so that you have that pool of funds available to help defray medical costs after retirement.
Myth #4: It’s going to be almost impossible for you to ever retire.
Nothing is impossible! Save 1% more into your 401(k). Add another $10/pay to your HSA. Set up a direct deposit into a savings account and increase that by $5/pay period every 6-12 months. Find a way to cut $25/month out of your budget.
These are relatively small numbers, and they may not be the right numbers for you, but if you make several small changes now and continue to make small amounts of progress every month, every quarter, every year, you will constantly build momentum toward a fulfilling retirement. This is not a “get rich quick” model. It’s much more of a “get rich slowly” concept. But I promise you that if you work to save more in a few places while reducing your spending, you absolutely won’t be worse off 5-10 years from now.
Retirement is possible for everyone. It just requires some effort. Run a retirement projection now to see where you stand as of today. Make the small changes that I mention above and you will see potentially large impacts in the future.
These are four things that I’m hearing when I talk to people about their retirement beliefs. If you have a belief or myth or assumption that you’d like to see me address, add it in the comments below and I’ll be happy to share my opinions. As my friends know, I have no shortage of those!