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Nearly every American working today dreams about being able to quittheir job for good and live out the rest of their life on a schedule of their own choosing. However, they might unknowingly be planning their retirement based on a myth or misconceptions that they have simply come to accept as truth, which could jeopardize their ability to retirement in comfort.
To help set the record straight, we reached out to our team of Motley Fool contributors andasked them to share a retirement myth they think needs to be busted. Read below to see what they had to say.
Dan Caplinger: One of the most difficult retirement myths to dispel has to do with how much you'll need in order to have a financially secure retirement. According to some estimates, replacing 80% to 85% of your pre-retirement income is the appropriate target in figuring out how much money you need to save for retirement. In some cases, professionals suggest that even greater financial resources are necessary, especially if you have high-cost medical conditions that add to your overall out-of-pocket expenses.
However, the assumptions behind this advice aren't always true for everyone. The general idea behind the 80% to 85% rule is that you shouldn't have to see a big change in spending when you retire, and because not all of your financial resources in retirement are subject to income tax the same way wages and salaries are, you'll need 10% to 15% less. However, if you've been saving a substantial percentage of your income already, then replacing your previous spending will require a much lower percentage than replacing your previous income would.
Having a plan for how much you'll need to spend in retirement is smart. But instead of following a one-size-fits-all rule that doesn't work well, tailor your decision to your situation, and save accordingly. The results will be much better.
Brian Feroldi:Many Americans believe Social Security was designed to provide them with enough income to cover all of their expenses when they retire, which is unfortunately just not so.In fact, Social Security was only designed to replace about 40% of a worker's earnings during their golden years, since it was assumed the the remainder would be provided for by pensions, savings, and investments.
The average monthly benefit a worker received in 2015 was $1,328, which works out to an annual income of about $15,900. That's not exactly a huge income to rely on, especially when considering that the poverty line in 2015 for a single family household was $11,770. The numbers look a little bit better if the retiree also has a spouse who is collecting benefits, as in that case, the average monthly check jumps to $2,176, but that still doesn't afford a lot of wiggle room in a retirement budget.
Unfortunately, many of today's seniors rely heavily on Social Security as their primary income source, as the SSA reported that 53% of elderly couples reported that their Social Security checks comprise more than half of their retirement income. That could set those seniors up for a rude awakening if they were to have a sudden financial disaster hit them, such as a health problem that generates a big medical bill, which could seriously threaten their lifestyle.
It can be a big mistake to assume Social Security alone will provide you with enough income to pay for your retirement. Anyone working today should make it a priority to build up a nest egg so they can life afford a lifestyle of their choosing when they retire.
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Matt Frankel: One retirement myth is that you'll be able to work for as long as you want to. Many people think if they're not quite ready to retire at 65, or whenever they originally planned, they'll simply stay at their jobs for another few years. However, this doesn't always work out as planned.
A survey by the Employee Benefit Research Institute found that 49% of retirees left the workforce earlier then they had planned. The majority of these early retirements were due to a health problem or disability (61%), many others retired early to care for their spouse or another family member (18%), and some were downsized or retired early because of their office closing (18%).
The same survey found that one-third of workers expect to retire after 65, but just 16% actually do. Conversely, only 9% plan to retire before age 60, but 35% of workers do.
The point is, you can't necessarily count on being able to work for as long as you'd like, which makes smart retirement saving even more important earlier in your career. You never know when you may be forced to call it quits.
Chuck Saletta: One of the most dangerous retirement myths out there is the belief that you'll receive an inheritance large enough to cover much of your retirement needs. The unfortunate reality is that even if your parents (or even your childless great-aunt who always called your her favorite) have enough money to take care of their retirement, they're not likely to have enough to cover yours,too.
Growing old can get very expensive. Lifetime medical expenses for a typical retired couple can easily pass $450,000, per a 2015 study by Health View Services. And while medical expenses get a lot of the attention, seniors still need a place to live, food to eat, clothes to wear, and a way to keep warm in the winter. In addition, as people age, they frequently need help with tasks that might have been simple in their younger days -- help that costs money.
As a result, what might look at the start of a retirement like a large enough nest egg to leave an inheritance could easily vanish by the end of that retirement. According to the 2010 Survey of Consumer Finances, less than a quarter of people have actually received inheritances, and the median inheritance of those who did receive one was around $69,000. While that's nothing to sneeze at, it's also not enough to fully fund a comfortable retirement.
Selena Maranjian: One dangerous retirement-related myth is that retirees have no business investing in the stock market. Sure, the stock market is volatile, and it can swoon at any time, suddenly and drastically reducing the value of your holdings. But so far, it has recovered after every such drop and has gone on to reach new highs.
It's true you shouldn't keep any short-term money, such as funds you'll need within the next five (if not 10) years in stocks, due to that volatility. But remember that your retirement is likely to last longer than five or 10 years. If you retire at age 62 and live to 92, you'll have 30 years of retirement, and it would be a shame if you kept your entire nest egg out of stocks for all that time.
So, taking your risk tolerance and personal financial situation into account, consider keeping some of your long-term money in stocks during retirement. The stock market is, after all, one of the best ways to grow wealth and outpace inflation. Per the folks at Vanguard, between 1926 and 2015, the stock market averaged annual gains of 10.1%, vs. about 5.4% for bonds. That's quite a difference. Many stocks offer dividends, too, which can provide welcome income in retirement.
Brian Stoffel:I think one of the biggest retirement myths out there -- and I have regularly helped spread this myth -- is that there's something inherently wrong with Americans. We can't seem to save up enough to fix a broken car, let alone live for 30 years without a stable stream of income.
While I certainly do think a critique of our consumption habits is in order, this misses the point. As fellow Fool Morgan Housel has shown, the very concept of "retirement" is incredibly new -- as in, if all of humanity were laid as a timeline across a football field, traditional "retirement" would have appeared within the last couple of inches.
In recent history, the elderly seldom lived beyond their working years. And if we look back even further at indigenous cultures, we see that the very concept of "work" as something separate from the rest of life or undesirable simply didn't exist. The tribe took care of the elders -- and the elders imparted their wisdom in return.
What's the point of all this? Simply that we probably aren't hard wired to save all of this money in the first place. We're used to our families and friends taking care of us in old age -- and that's the way it still works today, in much of the world.
This isn't to say that you shouldn't save up for retirement. Chances are, you'll be glad you did. But the next time you get down about your retirement situation, stop beating yourself up -- you're trying to do something almost none of your ancestors ever had to worry about.
Sean Williams: One retirement myth that needs to be put to bed once and for all is that Medicare is all you'll need to be protected during retirement.
Currently, 48 million Americans, of which five-in-six are seniors aged 65 and up, are covered by Medicare, the program designed to help pay for your eligible medical expenses during retirement. Original Medicare consists of Part A, which handles inpatient procedures, hospice, and any sort of skilled nursing facility care, and Part B, which covers outpatient services. Seniors also have the option of choosing Part D for a prescription drug plan that suits their needs.
On one hand, Medicare does indeed cover 80% of eligible medical costs under Part B, and it even provides certain types of care completely free of charge. But unbeknownst to some Americans, Medicare requires a 20% coinsurance payment for the remainder of services provided by Part B. This means if you need the latest cancer immunotherapy treatment that runs $150,000 per year, 20% of its average selling price is coming out of your pocket if it's covered under Part B. These costs, along with Part D coinsurance, can add up quickly, especially if you aren't prepared.
The solution? It might be worth considering a Medigap plan if you're enrolled with original Medicare, or a Medicare Advantage plan (also known as Part C), which can roll up Part A, Part B, Part D, as well as vision, dental, and hearing all in one plan. Medigap can help reduce your coinsurance responsibility, while Medicare Advantage plans come with maximum out-of-pocket limits of $6,700 in 2016 for Part B services. In other words, these supplemental plans can help eliminate any unwelcome surprises in retirement and allow you to enjoy your golden years.
The article 7 Pervasive Retirement Myths That Need to Be Put to Rest originally appeared on Fool.com.
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