6 Myths About Retirement, Debunked

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You may have been dreaming of retirement for decades, but if you don’t do your homework, you might get an unpleasant surprise.

Some people believe in myths about retirement – like how much they will spend and where they will live – without realizing that reality can be very different. By the time they learn the truth, it may be too late to adjust their retirement plans.

Don’t get caught off guard. Make sure you don’t fall for these common retirement myths.

You can always work longer if you don’t have enough savings

Elderly man in the hospitalMonkey Business Pictures / Shutterstock.com

It’s not uncommon for people to think they can simply postpone retirement or work part-time when they have little savings. According to the 2021 Pension Confidence Survey by the nonprofit Employee Benefit Research Institute, 72% of workers believe they will continue to work for pay after they retire.

The reality: While most workers think they will still earn a paycheck after they retire, the truth is that only 30% of retirees have actually worked for pay, according to the EBRI survey. In addition, the survey found that almost half of retirees left their jobs earlier than expected.

Some people can retire early for financial reasons, but health problems, layoffs, or family needs can push others out of the labor market early.

Your social security benefits cover all of your expenses

Elderly woman is worried about moneyMaria Symchych / Shutterstock.com

The EBRI survey found that 87% of employees and 92% of retirees expect social security as a source of income in retirement. According to a study by the Transamerica Center for Retirement Studies, 69% of baby boomers say social security will be their main income.

The reality: Certainly, many workers rely on social security to pay most or all of their bills. However, if you plan to do so, your lifestyle may need to be downgraded. The Social Security Agency says these benefits were never intended to fully replace your early retirement income.

If you start full retirement in 2021, Social Security will only cover about 28% of your early retirement income if you are a high earner. According to the government, this percentage is 42% for middle earners and 78% for very low earners.

You won’t pay a lot of taxes after you retire

Man files a tax return onlineMK photograp55 / Shutterstock.com

With your retirement from working life, you can assume that large tax burdens will be a thing of the past. After all, you don’t have to worry about Uncle Sam taking money off a paycheck, do you? The problem is that many retirees overlook the tax obligations that can come with their other retirement income.

The reality: If you have a traditional – as opposed to a Roth – IRA or 401 (k) account, you will have to pay income tax on all of your withdrawals. Nor can you avoid the tax by deferring withdrawals indefinitely, as the government has mandated minimum payouts over 72 years of age.

Also, if you earn too much from various sources of income, your social security benefits can be taxed. As we reported last year, half of retirees now pay income taxes on at least some of their social security benefits.

To see how you can ease the burden, read “5 Ways Retirees Can Cut Their Income Taxes.”

You will spend significantly less after you retire

Elderly couple traveling by motor homesirtravelalot / Shutterstock.com

Retirement means no more commuting, business attire or work lunches. By your mid-60s, you can also expect to have most of what you need and have paid off debt. But even if all of these things are true, it doesn’t mean your spending will come down significantly.

The reality: According to the Bureau of Labor Statistics’ 2020 Consumer Expenditure Survey, people ages 65 to 74 spent $ 52,356 last year. That’s still a huge expense and probably more than many people expected before retirement.

You can live in your home during the retirement age

Wife and helper in the retirement home.Monkey Business Pictures / Shutterstock.com

Aging in place is the preferred way for many people to see their golden years. The term refers to people who stay at home as they age rather than move to an elderly community, assisted living facility, or nursing home.

Nearly 90% of Americans aged 50 or older want to age on the spot, according to a survey by Capital Caring Health in 2021, a nonprofit elderly care provider.

The reality: People may want to age on the spot, but it isn’t always possible. The nonprofit United Disabilities Services Foundation says only 1% of homes in the United States are aged. Perhaps that’s one reason 37% of seniors are cared for in an institution, according to the Federal Aging Administration.

Medicare covers all of your healthcare costs

A doctor examines an elderly patient's eyessirtravelalot / Shutterstock.com

Failure to plan your health care costs can put your retirement at risk. Medicare provides valuable health insurance coverage for millions of Americans ages 65 and older, but it cannot be expected to cover all of your expenses.

The reality: Depending on your Medicare plan, you may not have dental, visual or hearing aid coverage. Also, no Medicare plan pays for ongoing long-term care. All in all, the Fidelity Health Care Cost Estimate predicts that a couple who retire at age 65 in 2021 will need about $ 300,000 to pay for medical expenses in retirement – and that doesn’t include money for long-term care.

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