Reaching Retirement age should mean we’ve accumulated a lifetime of Wisdom, but even the most well-traveled retiree can be vulnerable to myths. 

While buying into some myths is relatively low risk (think Bigfoot), others can be financially devastating. We’re concerned with the latter. 

Whether you are already in Boca Raton, see retirement fast approaching, or are relatively young, abandon these potentially expensive myths immediately. Hopefully we give you plenty of reasons to categorize these widely held beliefs as fiction rather than fact.

1. Medicare Means Free Healthcare

Those paying monthly premiums to healthcare providers daydream about the land of nonexistent premiums and fully covered procedures: Medicare. Wake up. Medicare is far from free. 

You must generally pay a premium for Medicare Parts B, C, D, and Medigap coverage. Deductibles ($1,600 for Medicare Part A in 2023), copays, and coinsurance also further cheapen the benefits of Medicare. If you have $0 allotted for healthcare in your retirement budget, it’s time to reassess.

2. You Don’t Need a Detailed Retirement Plan

While squirreling Money away in your working years is a strong start towards a secure retirement, it’s insufficient. You should have a rhyme and reason to your savings plan based on fixed costs, Travel budgets, inflation, projected Social Security payments, and other retirement-specific financial considerations.

Consulting a financial advisor may help ensure you’re saving strategically to avoid your financial well running dry before retirement ends.

 3. You’ll Have a Lesser Tax Burden During Retirement 

A common myth is that retirees face a far lesser tax burden than working folk. While this can be the case, you should not bank on falling down a tax bracket (or three) once you earn your last paycheck. 

As a retiree, you may lose valuable tax benefits, such as the mortgage interest deduction, 401(k) contributions, and dependent credits. When you pull money out of tax-protected accounts to live in retirement, you may also fall victim to higher prevailing rates than we see today (especially considering the looming specter of America’s debts).

4. You Can Rely on Social Security to Cover Costs of Living

“I don’t need to save for retirement. I’m getting Social Security!” – A future destitute retiree. 

In 2023, the average Social Security benefit rose to $1,827 per month. The maximum possible Social Security benefit was $3,627, but this max benefit is reserved for those who are least likely to need it based on their comparatively high earnings. 

For context, the total cost of living in Mississippi (the least expensive state) is $32,336, or about $2,700 per month. Don’t bet on Social Security alone unless you plan to retire to the streets. 

5. Retirement Is Less Expensive Than Your Working Years

Everyone’s retirement looks different. For some, bi-monthly cruises and frequent trips to visit the grandchildren mean that retirement is far more costly than yesteryear’s sacrifice- and work-heavy Lifestyle. 

For others, years of taking the kids to Disneyland, jetting around the world while they are (comparatively) young, and keeping up with the Joneses makes retirement look spartan by comparison. If someone tells you retirement is always cheaper or more expensive than your working years, they’re peddling a dangerous myth.

6. There Is Always Time to Start Saving for Retirement

Ask someone who has had to ask their adult child for a loan. The idea that it is never too late to save for retirement is not an idea. It’s total malarkey.

Should you start saving for retirement if you haven’t started already? Of course. Be honest about your delay, though. One advisory recommends that a 30-year-old have the equivalent of half their annual salary saved, while a 65-year-old should have between 7.5 times and 13.5 times their annual salary stashed away (and, ideally, growing rapidly).

7. Housing Costs Will Be Fixed

Underestimating housing costs is an especially common pitfall for those who have paid off their mortgage (or are close to payoff) by the time retirement comes. Why would one move when they have already paid for their dream home, after all?

Minds change, as do family circumstances and health. It’s wise to allot more for housing costs than you need, as this will help cover an unanticipated move (or two).

8. Retirement Savings Should Be in Hyper-Conservative Investment Vehicles

Losing one’s retirement savings is the stuff of nightmares. Just ask Bernie Madoff’s victims. However, today’s average earner cannot settle for low-yield investments and hope to retire. Inflation is too rampant to let retirement money grow at a snail’s pace.

The stock market (and other comparatively “risky”) investments should not necessarily be off-limits to your retirement fund depending on the investment climate and your risk tolerance. Speak with a trustworthy advisor about diversifying to maximize both Growth and security.

9. Bonds Don’t Yield Enough to Sustain Retirement

From 2000 through 2020, Long Treasury bonds with a duration of at least ten years yielded 8.3% per year. Long investment-grade corporate bonds returned 7.7%, while the S&P 500 averaged annualized returns of 5.4%. 

While common sense is that bonds are boring, low-yield investments, these numbers cast doubt on consensus. You don’t have to roll the dice in the stock market with your retirement (though you’re entitled to), as even “conservative” bonds have proven strong vehicles for nipping inflation’s heels.

10. Retirement Planners Are a Waste of Your Retirement Fund

What could be more important than your financial security after you can no longer work (or don’t want to work)? Few things, aside perhaps from your health and your offspring’s wellbeing.

Yet, some future retirees convince themselves that a trustworthy retirement planner is not worth the cost. What is the point of saving for retirement if you don’t know how much you need to save? For most, a retirement planner is worth their fee and the peace of mind they frequently deliver.

11. Paying Off Debt Should Always Come Before Retirement Savings

While paying off high-interest debt should be a top priority for most, debt does not always take precedence over retirement savings. You must weigh the potential upside of retirement vehicles (including the benefit of compound growth and employer match) against the interest rate you’re paying on debt.

Not all debt is the same, just as not all retirement-related investment vehicles are the same. Sometimes, Investing makes sense rather than paying debt immediately, and vice versa.

12. You Can Coast Through Retirement on Your 401(k) Contributions

401(k)s remain one of the most effective ways to save for retirement, especially if your employer matches (or partially matches) your contributions. However, you can’t say “401(k)” without also mentioning “limits.”

If you start contributing early enough and regularly max out your 401(k) contributions, your tax-protected nest egg could be sufficient to get you through retirement. However, contribution limits, fees, early withdrawals, and other hazards mean you should generally diversify your retirement savings beyond your 401(k).

13. You Should Never Take Social Security Before Full Retirement Age

If you can afford to wait until your full retirement age to draw Social Security, your monthly payments will be higher. You must ask, though, at what cost?

If you may not reach full retirement age, are in dire financial straits, or your marital situation makes it advantageous to claim benefits earlier, you don’t have to wait. Social Security is complicated, and an experienced advisor can help you find the sweet spot to maximize your benefits.

14. Your Withdrawal Rate Is Gospel

Those who plan their retirement diligently often set an anticipated monthly withdrawal rate. This strategy provides a measure of stability and flexibility, particularly when it comes to tax considerations.

However, there must always be contingencies when planning your retirement, and the withdrawal rate is no exception. It is smart to build wiggle room into your withdrawal plans and discuss prevailing life circumstances and tax considerations with your advisor.

15. All Withdrawals Are Equal

Retirement strategy does not end with a robust savings plan. Withdrawals are just as important in maximizing the value of your savings and minimizing tax hits when you pull money out.

Whether you are abiding by required minimum distributions (RMDs) or withdrawing out of financial necessity, where you take money from (and how much you take from various accounts) matters. A savvy advisor can help lengthen your retirement fund while you sip Mai Tais on the Tahitian sand.

16. Social Security Benefits Come Tax-Free

If you haven’t noticed, taxation tends to come in repetitive waves. It would be logical for you to receive tax-free Social Security payments (after all, you paid into the program via taxes), but that’s not how it works. That’s not how any of this works.

Take it from the Internal Revenue Service: Depending on the value of other income streams, your Social Security benefits may expose you to added taxation. Everything has a hidden cost, whether it’s a “free” lunch or retirement benefits.

12 Essential Tips Needed If You Plan to Retire on Just Social Security

Retirement should be a time of relaxation, not Stress – but if you’re planning to retire on just Social Security, there are essential tips you need to know to make it work. While it may seem daunting, it is possible with the right strategies and mindset. In this article, we’ll share 12 crucial tips to help you navigate your golden years without financial worries.

12 Essential Tips Needed If You Plan to Retire on Just Social Security

Understanding Your Social Security Full Retirement Age and Making Informed Decisions

Everyone, at some stage, retires. We all stop working eventually. Thus making a retirement plan is an essential pillar of your financial life. The Social Security retirement benefit is one of its most significant components. You should understand how it works and make informed decisions to ensure a comfortable retirement.

Understanding Your Social Security Full Retirement Age and Making Informed Decisions

Originally Published on https://thefrugalexpat.com/

Steve Cummings Journalist, Traveler, and Personal Finance Enthusiast

Steve Cummings is a traveler, writer, and personal finance enthusiasts that has taken an adventure to leave his home country to travel and live around the world with his family. Through many years of learning he seeks to help those to save more and travel better. He has been featured in MSN, The Associate Press Wire, and various other content outlets with his writing and publications through his website The Frugal Expat. In the last six years, He has traveled to all seven continents, over 30 different countries, and has lived abroad learning and teaching others about good financial habits and travel hacks.

As an ex-English Teacher, he hopes to provide good tips and education on money and travel to help people think outside the box and achieve the impossible.