5 Urban Legends About Retirement
Don’t fall victim to conventional wisdom – make sure your vision of how your finances will play out in retirement is realistic.
There’s no doubt about it — retirement is undergoing a profound evolution. Since 1940, the life expectancy of those who reach 65 has increased by five years. In other words, a person of that age today can expect to live into at least their mid-80s.1
Though welcomed, this extension will have wide-ranging implications for how we save for—and spend in—retirement, requiring us to recalibrate Social Security, employer-sponsored plans, individual savings and virtually every other fiscally-related aspect of retirement planning.
With retirement rapidly changing, it’s important to ensure that your assumptions are realistic. To that end, here are five important assumptions to revisit as you craft a winning retirement plan.
1. I can retire whenever I want
While most people count on being able to decide when to stop working full-time, that’s not often possible. Today, almost half of Americans retire earlier than planned,2 meaning some are in a position of not having saved enough to last their full retirement.
This happens for a variety of reasons, particularly health issues and workplace layoffs. Caretaking can also limit how long you continue to work if you have to step aside from your career to care for loved ones as they age.
Many must also work beyond retirement age because they haven’t saved enough. Median household retirement savings for those aged 55 to 64 checks in at $120,000. Such savings may not generate enough income to pay the bills in retirement.3 That’s because average monthly expenses in retirement run about $3,800 a month, according to the U.S. Bureau of Labor Statistics.4
Tip: Working with a financial advisor to beef up your savings and establish an emergency fund that can last 6 months to a year can help prepare for the unexpected.
2. I need to build a comprehensive savings and income strategy right away
When you first start working, you may not have a perfect retirement savings plan — student loans and an entry-level salary can make that difficult. But as a general rule, any savings is better than none. And thanks to the magic of compounding interest, even relatively small contributions can grow significantly over time.
Once you have accumulated a sizable nest egg, consider your guaranteed retirement income options as they may help you move closer to meeting your needs and smooth out any gaps in your retirement plan. Your initial plan is just a starting point: as you move forward in your career and your family grows and changes, your retirement plan will need to be reviewed and adjusted.
Tip: Schedule regular meetings with your financial advisor to see whether your retirement income plan should be updated.
3. Medicare will provide long-term care should I need it
It’s important to recognize that while Medicare will provide some short-term care following a hospitalization, the program does not cover long-term nursing care.
Long-term nursing care is expensive — averaging $6,844 per month for a semi-private room in a retirement home and $3,628 per month for an assisted living facility.5 You’ll likely need a steady income stream in retirement to help cover long-term healthcare needs.
Tip: Explore ways to incorporate funds for long-term care into your retirement income plan.
4. I can always go back to work later
It is true that one-third of retirees end up returning to the workforce — this is known as reverse retirement.6 However, a 2016 study found that the two most common causes of unexpected retirement had lower rates of return to the workforce: 23.5% of those who retired after being laid off returned, and only 17.4% of those who retired for health issues returned.
It’s also worth noting that the Social Security Administration sets limits on how much you can earn from working while still receiving benefits. In 2018, the limit was $17,040 per year.
For every three dollars you earn over that figure, one dollar is deducted from your monthly check. While this money doesn’t go away permanently—it comes back to you once you stop working or your income drops below that level—it’s a factor you should consider.7
Tip: Assess your sources of guaranteed retirement income so you can ensure that any post-retirement job contributes to shoring up your savings rather than paying for necessities.
5. My children or other family members can help cover my expenses in retirement
While older generations by and large hope they won’t need help from their families as they age, their children are more realistic. In fact, 63% of people with working parents said they plan to provide some level of support for them during retirement.8
In reality, most adult children have families of their own and may not be able to help to the extent many retirees may need in a longer retirement.
Tip: Ensuring that your retirement income plan includes sources of guaranteed income can help avoid future dependency on your children during your golden years.
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As these retirement urban legends reveal, you are likely to need more income in retirement than you may think. That’s why it’s important to save enough and to explore the ways that guaranteed income sources can help cover your retirement living expenses, both expected and unexpected.
Remember, the world isn’t flat — and your approach to retirement shouldn’t be either. If you need an outside perspective to help you plan, a seasoned investment professional can be an invaluable resource.
1 “Life Expectancy for Social Security,” Social Security Administration: https://www.ssa.gov/history/lifeexpect.html
2 “2017 RCS Fact Sheet #2: Expectations About Retirement,” EBRI
3 “The Average Retirement Savings by Age and Why You Need More,” NerdWallet, Aug. 2, 2018, https://www.nerdwallet.com/article/the-average-retirement-savings-by-age-and-why-you-need-more
4 “Let’s Get Real: What an Average Retirement Costs,” NerdWallet, May 28, 2018, https://www.nerdwallet.com/article/lets-get-real-what-an-average-retirement-costs
5 “Costs of Care,” Longtermcare.gov, October 10, 2017, https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html
6 “Labor Force Transitions at Older Ages: Burnout, Recovery and Reverse Retirement,” Board of Governors of the Federal Reserve Board, 2016, https://www.federalreserve.gov/econresdata/feds/2016/files/2016053pap.pdf
7 Marilyn Lewis, “The danger of working while collecting Social Security,” Money Talks News, 27 December 2017: https://www.moneytalksnews.com/working-while-collecting-social-security-careful-lose-money/
8 Cameron Huddleston, “63% of kids to financially support parents’ retirement,” GOBankingRates, 7 July 2017: https://www.gobankingrates.com/retirement/planning/kids-plan-financially-support-parents-retirement/
The information contained herein is for educational purposes only. It does not constitute a solicitation or offer to buy or sell any security or product.
Securities are distributed by AIG Capital Services, Inc., Member FINRA.
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