Retirement planning can be difficult at any age because we have many competing financial obligations in our lives. However, saving for retirement is necessary, and everyone needs to plan for their own retirement. Here are some of the myths or “rules” that can lead savers astray:
It’s too early to save for retirement. Retirement saving is the last thing on the mind of new graduates who are starting a career. They have student loans to pay off, rent to deal with and they want to enjoy life after many years of living a college student lifestyle. However, starting to save for retirement early is the best thing you can do for your financial future. Even a small amount of saving can grow to something significant given 50 years to compound. A mere $2,0000 invested when you’re 20 can grow to be over $100,000 by the time you’re 70 (assuming 8 percent annual growth).
When I started working, I didn’t want to save for retirement at all. Why should I save when retirement was 40 to 50 years away? It’s much more palatable to spend my salary on a nicer car and having fun around town. Thank goodness my dad convinced me to at least get the employer match in my 401(k) plan. I found that it wasn’t a big burden to save and I increased my contribution every year until I maxed out my 401(k) contribution annually. Saving early will also build good financial habits that will serve you well over your career. It’s never too early to save for retirement, and the earlier you start, the better off you’ll be when you finally retire.
It’s too late to save for retirement. The best time to start saving for retirement is when you’re young, but if you didn’t, it’s still not too late. Many people in their 20s and 30s didn’t save much because they weren’t earning much income and had a lot of expenses. If you haven’t saved much by the time you’re 40, then you might think it’s too late to start saving for retirement. Some people plan to work forever, but that’s not a good solution either.
Most people should be entering their prime earning years in their 40s, and they’ll have a lot more resources to draw on. If you’re making a good income and can’t save for some reason, then you need to talk to a financial advisor and revamp your budget. Even the IRS is trying to help you save by raising your annual 401(k) contribution by $5,500 if you’re 50 and older. You can also contribute an additional $1,000 to your IRA. Even if you haven’t saved for retirement when you’re young, you can still catch up and save more when your salary is higher. It’s not too late to save for retirement.
You can keep working forever. Some people think they can keep working until they die, but that’s not realistic. Health problems is the number one reason people retire early, and we are all more vulnerable as we age. When you’re young and healthy, you might think you can work forever, but spend more time with older people with health issues and this myth will be dispelled pretty quickly.
You need 80 percent of your income in retirement. This is a retirement rule that won’t fit everybody. Most retirees spend more money when they first retire because they want to travel and focus on having an entertaining retirement. On the other hand, if you save 50 percent of your income for retirement and have no debt, then you probably will need less than 80 percent of your pre-retirement income after retirement. The amount you need will be different from your friends and co-workers. You just need to sit down and figure out the right percentage for you.
Retirement means not working. Most working people imagine an idle retirement filled with rounds of golf and shopping, but that’s not the best way to retire. After a lifetime of working, an idle retirement will be boring and aimless. It’s much better to keep busy by working part time, volunteering and monitoring your passive income streams. Working part time is great for your finances because you can put off withdrawing and let your savings grow. Even if finances aren’t an issue, it’s still good to have a purpose in life. Volunteering for an organization you care about or working for a social cause will keep you physically and mentally active. Retirement doesn’t mean you have to be lonely and stay home. Many people focus on preparing for retirement but forget that it is retirement life that they need to keep in mind.
Personalize your retirement. These are just a few retirement myths that you need to be aware of. If you haven’t been saving much for retirement, then you need to start right away. The earlier you save, the better off you’ll be, but it’s never too late. Even if you are a bit older, starting to save now is better than waiting until later. Take control of your retirement planning and figure out what you would like to do in that phase of your life. Planning and saving for retirement now can be difficult, but it will be even more difficult if you have to retire without enough resources.