People have a lot of misperceptions about retirement. I’ve heard a lot of them over the years, and I’ve become especially aware of them since I started reading and researching extensively in order to produce content for this web site.
Where do these misperceptions come from? Generally, misperceptions thrive wherever there is a lack of knowledge or awareness. And many people rarely think about their retirement during their working years.
The average 50-year-old in the United States has saved $43,797 for retirement. 36% of Americans have saved nothing for retirement at all.
Whenever I think about this sobering statistic, it leaves me sad and perplexed. Why are we, as a nation, so underprepared? I am convinced that this situation exists because these misperceptions exist.
Financial preparedness aside, I have observed that many people either view their retirement with dread or, on the opposite end of the spectrum, with an overly simplistic and rosy outlook.
Let’s take a look at twelve retirement myths, and then consider the reality that undermines each of them.
1. Retirement is the beginning of the end
When the Social Security system was first introduced in 1935, the average life expectancy in the United States was 62. The original Social Security system began paying benefits at age 65. Clearly, the government’s expectation at that time was that people would work until they turned 65 (if they hadn’t already died), then have only a few more years left.
Today, the scenario is much different. The average life expectancy is now 79, and many people live well into their 80s and 90s. The average age at which people retire is 62. Not only will many people live 20 to 30 years after they quit working, but many will be quite healthy and active for at least part of those years.
Retirement can be a time of freedom and fulfillment. It can be a period in which you truly take control and design the life you want – if you envision and plan for it that way. That’s the central premise that Retire Fabulously! is based upon.
2. After I retire, I can play golf every day!
Regardless of whether your leisure pursuit of choice is golf, tennis, fishing, hiking, knitting, painting, or anything else, I have news for you: your retirement will almost certainly not consist of doing any one thing all you want, day in and day out. Sooner or later, you’ll get tired of it. If your activity requires others to participate with you, other people won’t always be available.
3. I’m miserable now, but I’ll be happy after I retire!
A variation on this is “I’ll be so much happier when I can stop coming in to this damn job every day!”
While quitting your job may, in fact, remove some stress and unpleasantness from your life, there are some aspects of working that you may find that you miss – the human contact, the sense of contribution and purpose, and getting out of the house every day. Not to mention the money!
Still, it’s better to have something to retire to than to think only of what you’re retiring from. You’ll find that it’s not enough to simply stop working; you need to have a set of activities that provide you with physical exercise, mental stimulation, socialization, and fulfillment to bring satisfaction to your life.
At a more basic level, happiness has a lot more to do with how you approach your life, regardless of what stage you’re in. If you’re a happy person before you retire, you’ll probably be a happy person after you retire. If you’re miserable today, you’ll probably be miserable tomorrow, unless you change your outlook and approach to life.
4. Retirement means the end of work
For some people, retirement does mean the end of work in the traditional sense. Some people will replace work with volunteering, but a growing percentage of retirees are returning to the work force in one form or another. Currently 40% of people over 55 are working. According a Merrill Lynch study, 72% of pre-retirees age 50 and older now say that they plan to work part-time, full-time, or in some entrepreneurial situation after they retire from their primary career.
People who work in some manner during retirement aren’t necessarily doing it for the money or the health benefits. Some are working to follow their passion, stay mentally active, stay physically active, enjoy social contact, and to enjoy a sense of purpose or contribution.
They are much more likely to choose an option that affords flexibility, involves fewer hours, and is fun and rewarding.
5. I don’t plan to retire – I plan to keep working
That’s fine if you plan to work for the rest of your life because you want to. If you are part of the estimated 20% of people who really do find their work to be richly fulfilling, then this may be what you are most happy doing with your senior years. Hopefully, you haven’t resolved to keep working because you haven’t saved sufficiently, or you view retirement with such dread that it seems like working would be the lesser of two evils.
Still, reality may have other plans. An injury or illness (yours or your spouse’s) may necessitate your exit from the work force. A layoff or company closure may result in you becoming involuntarily unemployed. Sadly, while age discrimination may be technically illegal, it is very real. If you find yourself in the job market in your 50s or 60s, you will find many fewer options available to you.
If you do plan to stay in the workforce, the best thing you can do for yourself is to stay current with technology and industry trends. No one will hire you or retain you if your skills become irrelevant.
6. I can wait a few more years to start saving for my retirement
When you’re in your 20s, saving for retirement is probably one of the last things on your mind. If you graduated from college with student loan debt, you have that hanging over your head. Plus, you’re eager to get your adult life started. You want to be able to buy a new car, do things with your friends, and maybe start saving for a down payment on a house.
But after you buy your first house, there will be furniture, kitchen appliances, curtains, décor, and all kinds of other things to buy. Plus, when people buy houses, they tend to choose a house that’s at the upper limit of what they can afford at that point in time. They figure that raises in subsequent years will effectively reduce the percentage of their budget that’s going towards their house payment.
Then there will be vacations to take. If you have children, that will represent a significant additional expenditure for at least a couple more decades. There will be college educations and weddings to save for.
One of the best decisions I ever made was to start contributing 10% to my employer’s 401(K) plan at my first job. After that, every spending decision was calibrated on 90% of what I earned. I never missed that 10%, because I never saw it and never got accustomed to having it.
The earlier you start the habit of saving for your retirement, the better. That money you save while you’re in your 20s has the most years to compound and grow.
If you wait until your mid-30s, you’ll have to start saving at least 15% to yield the same result. And if you’ve been in the habit of saving little to nothing up to that point, it will be difficult to find room for a 15% contribution.
If you wait until your mid-40s, you’ll have to start saving at least 20%, which will be a huge adjustment to make. Plus, you’ll be more at the mercy of how the market performs over a shorter span of years.
7. The government will take care of me after I retire
Actually, if you are a career government employee, the government will take care of you pretty well.
But if you’re thinking that you’ll be able to get by on Social Security and Medicare, you’re in for a rude awakening – or a very austere retirement. The average monthly Social Security check today is just $1,294. Social Security benefits account for only 38% of the income for today’s retirees, on average.
Social Security was never intended to provide complete retirement income. From the time it was created until today, it only exists to provide a subsistence living so that seniors won’t starve in the street.
Medicare doesn’t pay for everything, either. A 65-year-old couple retiring this year will still need approximately $240,000 to cover medical expenses throughout their retirement, according to Fidelity Investments.
8. Social Security won’t be there when I retire
Early in my working career, many of my co-workers believed that Social Security wouldn’t be around when we retired. That alone was enough to convince me that I needed to save for my retirement. I figured that if Social Security was still around when I retired, even in a reduced form, that money would be icing on the cake.
Obviously, it’s still here. I seriously doubt that it will ever disappear, although the government may tweak it by continuing to raise the “full retirement age,” and by raising the annual contribution ceiling for those who are still working. Eliminating Social Security or allowing it to fail would be political suicide, and most congressmen and women know that.
9. My family will take care of me after I retire
Do you really want to be a burden on your children?
Your children are going to have plenty of financial obligations on their plate already, such as raising their children and paying for their educations and weddings. What if your kids are barely scraping by when you reach the point where you will need to rely on them?
Having to live with your grown children (and perhaps their children) can be stressful for all parties. I’m sure you don’t want the primary emotion your kids feel toward you during the golden years of your life to be resentment.
That said, I realize that customs and expectations regarding this topic vary widely among cultures around the world. In some cultures, the societal norm is for grown children to take care of their aging parents and multigenerational households are common. Even if this is the case for you, an honest evaluation of your circumstances and your family’s feelings and attitudes may be in order.
10. My employer’s pension will take care of me after I retire
For a lucky few, who have spent most or all of their career at an employer that still offers a pension plan, their pension may indeed take care of them. Note, however, that most company pension plans are not indexed for inflation.
In the United States, company pension plans have been disappearing over the past few decades. Besides, most workers don’t remain at the same company long enough to qualify for a pension that will provide a significant income stream.
State and federal government employees (which include military servicemen and women) are most likely to benefit from a significant retirement plan. A friend of mine who taught public school for over 30 years finally retired when it got to the point that his retirement check would be greater than his working paycheck.
But as governments continue to struggle under the burden of massive deficits and pension plans continue to disappear as a benefit in private industry, we may see government pension plans reduced or eliminated in the future.
11. I’ll be able to live on a lot less money after I retire
Maybe you will. Truthfully, most of us could live on a lot less money if we had to. After all, most of the rest of the world does.
But the question is: do you want to live on a lot less money after you retire? Or are you just expecting that you will have to?
It’s true that certain expenditures will go down, such as commuting costs and work attire. Your children will probably be grown by the time you retire. Perhaps your house will be paid off. But other expenditures will increase, such as health care. If you plan to travel more, that will cost more money. With more free time on your hands, you may want to participate in more activities that cost money.
12. I will spend X% of my current income during retirement
I’m not a big fan of retirement formulas, for the reason I just described above. Retirement formulas are averages, for average people. You’re probably not average.
You have probably seen a wide variety of formulas for how much money you will need to have saved before you retire. Some say $1 million, some say $1.5 to 2 million, others say 11 times your final annual salary. A common statistic is that your monthly spending in retirement will be 80% of what you are spending each month now. I’ve seen that percentage vary from 75% to 100%.
There are many factors which complicate such formulas. Will you still be carrying a mortgage into retirement? Do you have other debt? (Some people are still carrying student load debt when they retire.) How good is your health? What kind of traveling do you want to do? Do you plan to move to a smaller, cheaper home or move to a less expensive locale to live?
While any of the guidelines mentioned above will at least get you in the ballpark of how much money you’ll need to save and how much you can expect to live on each month, what’s right for you depends entirely upon your needs and desires.
One of the greatest benefits of envisioning your ideal retirement lifestyle while you’re still working is that you can determine how much money you’ll need to support the lifestyle you wish to have, as opposed to determining what kind of lifestyle you can have based on the money you’ve saved (or not).
Retirement can be a hugely fulfilling and enjoyable (and lengthy) chapter of your life.
The best way to ensure that it will turn out this way for you is to approach your retirement with your eyes wide open, so you’ll have a realistic and fact-based view on what your retirement will be like, both from a financial and from a lifestyle perspective.
Please feel welcome to contribute your comments below.
© 2015 by Dave Hughes. All rights reserved.
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