When it comes to planning for retirement, there’s a lot of information available. From financial media to financial professionals to even your own friends and family, there is no shortage of retirement planning advice.
Unfortunately, not all advice is good advice. In fact, there are many persistent retirement-related pieces of wisdom that may not be right for you and your goals. Below are four common retirement planning myths. Think carefully before you make one of these assumptions a component of your retirement plan.
Myth #1: I need only 80 percent of my pre-retirement income to be comfortable.
Many retirees assume their spending will go down after they retire. That may be true in some instances. For example, you may downsize to a smaller home. You and your spouse may decide you can get by with only one vehicle. And you’ll likely see a decrease in work-related expenses, such as buying lunch or commuting to work.
However, there may be other expenses that increase. For instance, you may find yourself traveling more frequently. You could take up a costly hobby or spend more time shopping. You also may see your medical expenses increase as you age.
It may seem reasonable to assume your expenses will go down. However, you may want to develop a retirement budget to get an accurate view of what your spending could look like in retirement.
Myth #2: I should start my Social Security payments as soon as possible.
You’ve probably been paying into Social Security most of your adult life. So it may make sense to file for benefits as soon as you have the opportunity, at age 62. However, there’s good reason to wait.
One of the biggest factors in determining the amount of your Social Security retirement benefit is your full retirement age, also known as FRA. Your FRA is either 66 or 67, depending on your date of birth.1 If you collect benefits prior to your FRA, you could see a permanent reduction in your payments of up to 30 percent.
However, if you wait until your FRA, you won’t see any reduction. In fact, if you wait until after your FRA to file, your benefits could increase 8 percent per year. The latest you can defer benefits is age 70. That means if your FRA is age 66 and you wait until age 70, you could permanently increase your payments by 32 percent.
Myth #3: Medicare will cover all of my medical expenses.
Medicare is certainly a valuable tool for retirees. However, it likely won’t cover all of your medical expenses. Your Medicare coverage depends on which options you choose. Medicare has a variety of plan types available for specific expenses. Some plans only cover hospitalization, while others cover things like prescription drugs. You can combine the plans to best fit your needs and your budget.
Even if you maximize your coverage under Medicare, though, there will still be expenses you will have to pay out of pocket. For example, you will likely have premiums, deductibles and copays. Also, Medicare offers limited coverage for long-term care, so you may want to plan as early as possible for that expense.
How much could you end up paying out of pocket for health care? According to Fidelity, the average 65-year-old couple retiring today can expect to pay $245,000 in medical expenses during retirement.2
Myth #4: I should avoid all risk after I retire.
It may be tempting to move all of your assets into so-called safe vehicles that have little risk of loss after you retire. After all, since you are no longer working, you may have little opportunity to recover from a serious market downturn.
Many of those “safe” vehicles, though, don’t offer substantial opportunity for growth. And you’ll likely need growth to combat inflation, fund medical expenses and other emergency needs, and support a retirement that could last several decades.
Instead of fleeing for safety, talk to your financial professional about other options. For example, certain types of annuities may offer you downside protection along with upside opportunity.
Ready to reassess your retirement planning effort? Contact us at Carstens Financial Group. We welcome an opportunity to analyze your goals and needs and help you develop a plan for success.
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