You've spent decades planning for your Golden Years, crunching numbers and saving furiously, but even if everything checks out on paper things can still go wrong amid the ever-changing economic climate. There are ways to safeguard yourself though, and a good place to start is to weed out popular misconceptions. To help you along, we look at some common retirement myths:
- It's all about the money. When planning for retirement, it is easy to get caught up in the numbers but that should not be the only end goal. Writing for Forbes, financial educator Joe Catanzarite explains that many retirement goals are personal, not financial, and those visions should be part of your retirement plan. Figure out those personal goals and then look at what it will cost and work that into your retirement plan.
- Invest in "safe" bonds and CDs. Decades ago, it was standard to build a no-risk retirement portfolio upon bonds and CDs (certificates of deposit), but things have changed and this does not necessarily apply anymore. Earlier generations had shorter life expectancies and they were also subject to less intense inflations, FinancialMentor notes. Now retirees are living up to 30 years longer and with inflation rates climbing, a "safe" portfolio could actually be risky.
- You can stop planning financially when you retire. Unfortunately, this is not the case. There are dozens of things that will crop up and you will need to plan for them and budget accordingly, financial blog Roots of Wealth notes. From unforeseen health issues to estate concerns, financial planning is just as important during your Golden Years.
- It's best to claim Social Security at 62. Many people start to take their Social Security at age 62, but this could reduce those benefits by 30% the first year. To boost your social security, try to refrain from claiming for as long as possible. For each year you prolong it, the higher the payout will be.
- You need less of an income in retirement. Catanzarite points out that there tends to be a "one-size-fits-all myth" for retirement planning and that is the 80/20 rule. This is based upon the theory that, during the Golden Years, you can live off 80% of your pre-retirement income. This, combined with the retirement myth that you should cut 20% of your lifestyle during retirement, can lead to disaster. Many people use retirement as an opportunity to tackle their bucket list, but this will require extra income, which they may not have saved for.
- Retirement is something shared between couples. Many households approach retirement as a "couples" thing, but relying on your spouse is risky business. For perspective, over half of American women at retirement age are single and divorced or widowed, Roots of Wealth notes.
- Having a pension and Social Security in place means you don't need a plan. The unfortunate reality is that the two combined may not be enough to support retirement. Most retirees will have a third of their income covered by Social Security benefits. However, at least 21% of couples and 45% of singles depend nearly completely on their Social Security, Catanzarite says. Further complicating the matter, many companies nowadays have less of a defined benefit pension plan and instead offer a contribution plan, and a number of existing pensions in financial crises may not pay as much as you expect.
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