6 Retirement Planning Myths and Mistakes to Avoid

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For many people, retirement planning often starts — and also ends — with opening a 401(k) account that their employers sponsor. In addition, almost 15% of Americans don’t have any money saved for retirement at all. If you’re in one of these groups, it can be helpful to take a look at some misconceptions that might be preventing you from planning well for funding your lifestyle during retirement. To help you develop more effective saving habits, we’ve rounded up some of the most common retirement myths and ways you can avoid them.

From relying only on your 401(k) to thinking Social Security is enough to get you through, these retirement planning mistakes can disrupt your finances during your golden years. Fortunately, it’s never too late or too early to start planning for retirement, and you can get on track by learning about these myths and the truth behind them.

You Won’t Need as Much Money as You Do Now

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Many adults believe they won’t need as much money in retirement as they do in their working lives. And it does make some sense; during retirement, they no longer have to commute, their kids will likely be adults, and maybe they even plan to downsize their house and cars. While all of those changes can mean you’re spending less money, you may be surprised at the income you’ll need to comfortably retire.

A traditional guideline is to save up enough money so you can live on at least 70% of your current income in retirement. This means that, if you plan to follow this guideline and live on 70% of your current income, you’ll need to calculate how your life would look with this figure. Even though you may not be paying for school tuition or lunches out with colleagues, retirement expenses can still add up. Think of all the plans you have for hobbies, travel and other interests. Some retirees buy second homes or vacation properties, and you may want to do the same. You might also want to take longer vacations and travel more with extended family. 

Consider your plans for retirement, and rethink the 70% threshold if necessary. You may not have your mortgage paid off by the time you retire, which could mean 80% or 90% would make your lifestyle more comfortable and affordable. Keep in mind that you may incur more healthcare costs as you age, too.

You Only Need to Max Out Your 401(k)

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When it comes to saving for retirement, many people rely on the income from their 401(k) plans. One common myth is that the funds in your retirement account — whether it’s work-sponsored or you’ve opened it yourself — will be all you need to thrive in retirement. Unfortunately, even maxing out your 401(k) may not be enough to get you through your retirement years, depending on your age when you open it.

In order to ensure you have enough, plan to start building up other forms of savings in addition to your 401(k). Individual retirement accounts (IRAs) and other investments can help ensure you have the income you need to enjoy your life and keep up your lifestyle. A financial advisor who specializes in retirement planning can assist you in determining the types of investments that’ll best fit your financial situation now and in the future.

Your Retirement Won’t Last Long

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Retirement isn’t a quick chapter in your life — it’s just one that might be a little bit down the road. If you retire in your 60s, you could live another 20 years or more — longer than some children live with their parents. Retirement is a big part of your life, so it’s important not to underestimate how long you may live after you retire.

According to the CDC, the average American’s lifespan is 78 years. Whether you live until you’re 75 or 95, you want to plan for a long and healthy life. It’s always better to have more money in the end than to run out; the twilight years of your life, depending on your healthcare needs, can be expensive due both to medical costs and the rising cost of living. Make sure you have enough by diversifying your savings and your income outside of your 401(k).

You Can Rely on Social Security Alone

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Social Security is a great resource for retirement, but it’s best to think of these payments as a sort of safety net, not as your primary source of income. While it’s possible to do so, the payment amounts generally aren’t comfortable to live on alone, depending on the quality of life you’re enjoying while employed.  To determine how much Social Security you and your spouse will receive in retirement and better anticipate what to expect, the Social Security Administration has some helpful calculators available to show you.

You shouldn’t discount Social Security income, but you also shouldn’t plan for it to pay you enough to maintain your current lifestyle. Part of planning for retirement means factoring in the costs you currently have in addition to a new lifestyle with potentially more free time — and more reasons to spend money to keep yourself occupied.

You Only Need Medicare for Health Insurance

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Medicare is a helpful health insurance resource provided by the U.S. government to offset the costs of medical care you receive during retirement. Depending on your medical needs, however, Medicare coverage may not be enough to pay for ongoing care and treatment. Even if you don’t have rising healthcare costs, it’s important to keep in mind that Medicare only covers about 80% of your medical bills — you’re responsible for the other 20%. If you only rely on Medicare for your insurance, you could end up paying quite a bit out of pocket.

To help ensure you have enough medical coverage, consider signing up for Medigap programs to provide extra coverage for that 20%. Medigap insurance plans help to cover procedures, appointments and prescriptions that Medicare alone doesn’t cover. There are also private insurance options available to ensure you and your spouse or partner are fully covered in retirement. 

In addition, extra savings and a designated medical fund can come in handy as you age. It may be a difficult subject to think about, but it’s always better to have more coverage and money saved for a medical emergency later in life — even if you don’t end up needing to use it.

Your Home Equity Is Reliable

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If you’ve owned your home for years, you likely have some sizable equity built up. And equity is a nice nest egg to have during retirement — if you sell your home to move or downsize, it’s a great resource to tap into for your next home or to use as income after you’ve retired. But it isn’t safe to rely on your equity alone.

If you need a nest egg to ensure you’ll have extra income or money down for your next home, you’ll still need to have separate savings or an additional income stream. With fluctuations in the housing market and various factors affecting real estate markets and the economy as a whole, it isn’t a sure bet to rely solely on your home’s equity. Consider additional savings, brokerage accounts, your 401(k) or even passive income streams to generate more money.

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