We’re Busting Three Outdated Myths About Retirement
The workforce has changed so much since the baby boomers were the dominant population.
Millennials, people born between 1980 and 1996, now outnumber boomers, who were born between 1946 and 1964.
Once upon a time, you could spend your entire career at one company. Today, very few people expect to stay with one employer until retirement. It simply isn’t realistic in today’s corporate environment. (Besides, millennials tend to be job hoppers.)
Pensions were once a staple at many larger companies. However, these have been replaced by many organizations with 401(k) savings accounts. They’re largely funded by workers for their retirement years, with employers contributing varying amounts.
Addressing outdated retirement myths
It’s clear the face of the post-career world has changed. However, tired narratives persist about what retirement is and should be.
There are no fairy-tale endings on the retirement horizon for any of us. We have to create our own solutions. Therefore, we’re taking on three common retirement myths.
Because knowledge is power when it’s accurate, and we really do want you to live as happily ever after as possible.
1. Your taxes will be lower than when you worked full-time
Not necessarily.
Many people assume that once they stop putting in eight hours a day and five days a week, their tax rate will decrease. Yet this doesn’t happen very often.
Your taxes in retirement are determined by how much income you have and its source.
After leaving full-time employment behind, many people want to keep the same standard of living to which they have become accustomed.
So if you plan to move to an upscale retirement community, dine out frequently, travel to see the kids or grandkids or the world, etc., your cost of living might not be any lower than when you were working.
Save now, pay later
Many financial products are tax-free while they accumulate funds.
However, once you retire and start making withdrawals, you have to pay taxes on the money. The majority of private pension funds are taxable, as are traditional IRAs and 401(k) plans.
In addition, if your yearly income is above a certain amount, your Social Security benefits could be taxed.
Here’s another thing to consider. If you no longer have dependents or a mortgage, you cannot take those tax deductions anymore.
As for future tax rates, it is more likely they will go up than down.
2. Social Security takes care of your living expenses
Once you hop off the career train and become eligible for Social Security, do you think you can live happily on those benefits alone?
Probably not. The Social Security Administration (SSA) notes that for people with average earnings, their retirement benefits will only replace 40 percent of that income.
This percentage drops if you are in an upper-income bracket or a lower-income bracket.
In December of 2017, according to the SSA, 42.5 million retirees collected an average of $1,404 per month in benefits. At that time, Social Security represented about 33 percent of a retired person’s income.
Among older Social Security beneficiaries, 23 percent of married couples and 43 percent of unmarried people relied on their benefits for 90 percent or more of their income.
Therefore, you will need another source of money to retire comfortably, such as an annuity. (Or from an inheritance, if you’re lucky.)
3. Medicare will meet all your health care needs
As with Social Security, Medicare was not meant to cover all of a senior’s medical expenses.
Recent figures show there are 48 million Americans on Medicare. Five out of six recipients are seniors age 65 or older.
While Medicare may cover the majority of health care costs for many seniors, the type of care they require varies greatly from person to person.
Medicare covers hospitalization and doctor visits, but it does not cover most long-term care, including home health care, assisted living and nursing home care.
According to a study by Hewitt Associates, health care costs can amount to 20% of a retiree’s yearly income.
For those on Medicare, or who expect to become eligible upon retirement, Medicare Advantage or “Medigap” plans could help reduce out-of-pocket expenses.
Outdated retirement myth recap
There you have it. There is no yellow brick road leading to a secure retirement.
That is why you must take the time to create a strategy to meet your needs and those of your spouse or partner.
If you have done minimal planning or none at all, we hope busting these three outdated retirement myths encourages you to take control of your health care and finances.
Are you ready to start retirement saving now, or would you like to review your current strategy to confirm you’re on the right track?
It’s easy to connect with an AmeriLife agent who will evaluate your situation and help you determine the best course of action to plan for an enjoyable retirement.
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