Top 5 Retirement Myths
Planning for retirement is a topic that is not on the minds of many people because
, well it is too boring. Some people would rather spend a 1 hour extra of their day in the gym working out or socializing than talking to a financial advisor about their retirement goals. In this article, we explore 5 myths that you should get out from your head in order to practically prepare for a smooth retirement. As life expectancy continues to rise (people are living longer), you have to plan at what age will you realistically be able to retire and how much of a nest egg you will need. Will you need $1 million, $2 million or more? Well it all depends on your lifestyle, your goals, your financial obligations and more.
Myth No. 1 - You can Choose your Retirement Date
It is advisable to pick a tentative date when you would like to retire, and work towards that goal. According to a study done by the Employee Benefit Research Institute in March 2010, 9% of all American workers said they plan to retire before the age of 60 while 31% had already left the workforce before their 50s. About 24% of workers wanted to work past the age of 70 however only 8% managed to do so (keep themselves employed). 41% of all workers said they had to leave the workforce earlier than planned because of health problems, disabilities, layoffs or to care for their aging spouses. The point of this paragraph is to tell you that choosing a retirement age will not always be a choice for you, life events such as the above mentioned will either force you out of work or you just might die early.
Myth No. 2 - A $1 million Nest Egg will get me Comfortable Retirement
While it is always nice to have a $1 million net worth when you retire, $1 million now spread out over 30 - 40 years (before your retirement) will not manage to give you a life of luxury but rather a well off or comfortable life. According to Michael Farr, president of Farr, Miller, & Washington, "If you can't live on $50,000 a year, then $1 million is not enough. You are probably going to be able to live in retirement, but not particularly well. No one will consider you rich."
Myth No. 3 - Social Security will Not Fund your Retirement
The existing Social Security trust fund currently holds enough assets to pay out promised social security benefits until 2037 according to a recent report by the Social Security Board of Trustees report. After that, the Board estimates income tax revenues will be sufficient enough to pay out 78% of all schedule benefits leaving for a 22% shortfall. However, by doing minor tweaks & changes to the Social Security system, the U.S. Senate Special Committee on Aging report said social security benefits could be enough to pay out for the next 75 years. Examples of tweaks include tax increases, pushing back the retirement age past 65 or a cut of benefits.
Myth No. 4 - You're too Old to Start Saving for Retirement
It's not too late to do anything my friend, so this myth is just out of whack! Most people get discouraged by knowing they have to save up $1 million by the time they are 65 because they just don't know how! Christine Fahlund, a T. Rowe Price senior financial planner says "When people hear how big their nest egg should be, they think it's impossible and stop saving altogether or never get started. Focus on the process instead. Contribute up to the maximum amount to your 401(k) and, if you are 50 or older, you are now eligible for catch up contributions."
Myth No. 5 - Retirement is Permanent
Many people think retirement is the end of working life. However, older seniors are increasingly turning to part time work in order to fulfill their lives and make valuable use of their time. For instance, some older seniors finding part time consulting work, labour work, or just volunteering their time. As an instance, my home inspector who had 30 years construction experience was a retired senior who just did home inspections to fill his time, sitting at home was not an option for him!
Top 5 Retirement Myths
By: Hussein
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