It’s hard enough to prepare for retirement when you’re working with correct information. Factor in the misconceptions that are out there, and it can feel downright impossible.
That seems like a good reason to try to cut through some of the misconceptions. The Motley Fool investigated three examples in its October 2019 article, “3 Money Myths That Could Ruin Your Retirement.”¹
The author, personal finance and retirement writer Katie Brockman, breaks down each of these things that she considers myths and how they can impact your retirement. “Myth” is a strong word, and “misconception” might be a little more accurate since each comes from some factual basis, but the end assumption is flawed in some way.
Take, for instance, the first misconception: The idea that you will spend less in retirement. According to the article, it’s likely that spending will change during retirement for most people. But it just might not be different in the way you’re expecting. The article cites a report from J.P. Morgan that showed nearly 80% of retirees experienced a significant change in their spending, but more than a third of them found themselves spending more than they had before retirement during at least some retirement years. For many of the survey respondents, the years they spent the most often came early in retirement.
You can imagine the challenge that would come with suddenly spending more than expected! So, this misconception could be expensive. You may average less spending per year over the course of your retirement, but that average may include years of more spending.
Another misconception from the article is that if you wait until you have a higher income, it will be easier to save for retirement. At first blush, it’s easy to rationalize this idea. Making more money would mean there’s more money to save. However, building a retirement nest egg can take years. If you put off saving for retirement you may find yourself needing to save an even larger percentage of your income. Missing out on years of potential annual rate of return can result in challenges later in life. Saving early, even if it’s a small amount, can have strong financial results.
The final misconception in the article deals with Social Security. In the article, they caution against assuming Social Security benefits can be your primary source of retirement income. According another Motley Fool article,“The Average Social Security Benefit Is Probably Smaller Than You Think²,” in 2019 the average Social Security check was just over $1,400. For many people, that’s likely not enough to cover all your monthly expenses. When you look at the potential growth of medical expenses in the future, you may feel even less enthusiastic about covering your costs with Social Security benefits alone.
What will be important is for you to maximize your Social Security income when the time comes. Working with a financial services professional can help you determine the right time and strategy for your personal financial situation.
Social Security, monthly expenses and delaying savings can all have a large impact on your financial future. Misconceptions, myths and incorrect assumptions about these issues can further cloud your vision of the future. By ruling out the information that isn’t helpful, you give yourself an easier path to retirement and make decisions that can help you realize your retirement goals.