The 4 Biggest Retirement Myths – Part 1

I spent nine years of my career helping employees of a Fortune 500 company decide whether to accept an early retirement plan. Not only was it a life-changing experience for the people who made the irreversible decision to sever ties with their primary source of income, but it also had a huge impact on me. 

I’ll get into some retirement myths shortly, but one truth about retirement is that it can be enormously stressful.  That may sound odd to someone still dealing with the stress of working who can’t wait to retire, but when the day finally comes to walk out the office door one last time it can be a very emotional experience.  Not only does employment provide income, but it also creates a sense of purpose and structure that some people miss dearly once it is gone.

My perception of retirement changed dramatically over the course of those nine years, so much so that I caution friends and family to think very hard about what they will do after they retire long before the day finally arrives.  While the idea of waking up every morning without having to get dressed up and go to work sounds great, after a while it can get a little tedious if you don’t have something else to fill the time.

Once you are confident you have that piece of it figured out, you still need to make a rational decision based on facts. Retirement planning is hard enough as it is, so there is no need to further complicate it with misinformation that can cloud your judgment.

To that end, in this two-part series, I examine the four worst myths about retirement investing. Here are the first two:

“Most people die within a year of retiring”

I have no idea where this one came from, but I have heard it repeated by so many people that it needs to be addressed.  Not only do most people not die within a year of retiring, but statistics show that Americans are living an average of about 20 years in retirement — longer than ever!

According to the Social Security Administration (SSA), “A man reaching age 65 today can expect to live, on average, until age 84.3. A woman turning age 65 today can expect to live, on average, until age 86.7.”

The SSA goes on to state, “About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.”

The upshot: If you haven’t saved up enough money to last that long, you better hope your Social Security benefit will be enough to carry you through to the end.

“Social Security will be gone by the time I retire”

No, it won’t. Social Security is in trouble and needs fixing, but it will still be around by the time you retire. It will need some tweaking to remain solvent over the long haul, but the amount of your gross benefit should not be reduced.

Instead, the amount of tax paid on that benefit will probably go up, but unless you have a lot of income from other sources, your net benefit should be about the same as it is under current law.

An oft-repeated corollary to this myth is, “Even if Social Security is still around, it won’t be enough to cover all my costs in retirement.” That’s probably true, but it could go a long way towards covering most retirees fixed expenses. According to the SSA, in June 2018 it paid out nearly $61 billion in retirement benefits to more than 43 million retired workers for an average monthly benefit of $1,413.

If you are married, it may help to know that the typical married couple receives about $2,300 per month. I suspect that number will increase substantially as the number of two-earner households goes up. In retirement, a married person is entitled to the greater of 100% of the benefit earned on their own or up to 50% of their spouse’s benefit. So, if both husband and wife earn a monthly benefit of $1,400, their combined benefit would be $2,800.

That may not be enough money to cover all of your expenses in retirement, but it should go a long way towards ensuring that you can sustain a reasonable lifestyle. If it does not, you will need to be sure that you have saved enough money in your retirement accounts to generate the extra income you will need.

Tomorrow, I’ll discuss two other myths that you should ignore when planning your retirement.

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