You probably have the wrong idea about your ‘golden years.’
After 30 or 40 years in the workforce, you’ll probably be ready for the day when you can quit your job for good. However, you could be in for a shock. “Be prepared for the fact it’s not going to be exactly how you thought it would be,” says David Schneider, a certified financial planner and founder of Schneider Wealth Strategies in New York City. Here are 10 myths about retiring that catch many people by surprise.
Myth No. 1: You’ll have lots of free time to fill.
You may envision lazy days spent puttering around the house, but many retirees find it isn’t long before their calendar fills. Volunteer activities, hobbies, family events and travel can all quickly fill in the time previously earmarked for work.
Myth No. 2: Retiring is a piece of cake.
“It’s actually disorienting for some people,” Schneider says. “There’s an adjustment phase.” Having a plan for how to spend your time in retirement is one way to minimize how long it takes to comfortably settle into a new routine.
Myth No. 3: Retirement means moving someplace new.
For many, the stereotypical retirement involves packing up and moving somewhere warm for golfing or gardening year-round. It’s certainly an ideal for many people — a Bankrate.com survey found 3 in 5 respondents want to move elsewhere in retirement. Yet only 1.9 percent of 65- to 74-year-olds who owned and occupied their own home in 2011 had moved in the previous 12 months, according to a 2012 study from The Joint Center for Housing Studies of Harvard University.
Myth No. 4: Your taxes will be lower.
Your income will likely be reduced in retirement, which may make you think your taxes will decrease as well. Not necessarily true, says Stein Olavsrud, a certified financial planner and portfolio manager at FBB Capital Partners in Bethesda, Maryland. Older Americans often have fewer federal deductions and dependents to claim, which could mean a greater percentage of their income goes to Uncle Sam. And don’t assume moving to Florida or another state with no income tax will help. “Some people believe no income tax equates to savings,” Olavsrud says, “but sales and property taxes could be higher, as could the cost of living.”
Myth No. 5: Social Security will take care of your expenses.
Olavsrud says he sees some retirees make the mistake of believing Social Security should cover their expenses once they stop working. On the contrary, Social Security benefits were never intended to be a person’s primary source of money in retirement and are meant to supplement pensions or investment funds.
Myth No. 6: You won’t be able to pay the bills.
The news is full of stories about workers who fail to save for retirement. It’s easy to think most people will be destitute during their final years, but Frederick Vettese, author of “The Essential Retirement Guide” and chief actuary with finance firm Morneau Shepell, isn’t so sure. “We seem to think we need 70 percent of our final income [to retire comfortably]. That is a crazy number because no one ever gets there.” Vettese notes midcareer families may live on as little as 35 percent of their gross income after mortgages and debt payments are subtracted. By retirement, many of those expenses have disappeared, meaning people can get by with less income.
Myth No. 7: Retirement means moving investments to stable funds.
Given the volatility in the stock market, it’s no wonder many people buy into the myth that investments should be moved into stable funds after retirement. “Putting money in CDs or a bond portfolio can be just as dangerous as being overly aggressive,” Olavsrud says. As life expectancy extends, people risk running out of cash if their investments aren’t at least keeping up with the rate of inflation.
Myth No. 8: Health issues don’t slow people down until much later.
Schneider says he regularly sees people affected early in retirement by medical problems such as arthritis, limited mobility and hearing issues. “People are surprised by the changes in their health,” he says. “It’s a real shock to discover you might have to take a medication for the rest of your life.”
Myth No. 9: You’ll retire when you want to.
Half of U.S. workers retire before they expect to, according to the 2015 Retirement Confidence Survey from the Employee Benefit Research Institute. Of those, 60 percent leave the workforce early because of health or disability issues. Others were pushed out of a job due to company downsizing, or they had to leave to care for a family member.
Myth No. 10: Retirement planning can wait.
One of the most dangerous retirement myths may be that you always have time to start planning later. Unfortunately, compound interest — the force that helps beef up retirement accounts — works best when money is invested early. Waiting too long to save could leave you whittling down your bucket list later in life. Olavsrud says parents most often make the mistake of putting college savings before retirement. “A student can get a loan for college,” he reminds people. “You cannot get a loan for retirement.”
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