Shakespeare contemplated: “To retire or not to retire, that is the question.” Or something like that anyway… Modern day workers, poets and playwrights included, are still pondering retirement. Is it time? Should I stop working completely? How long will my money last? Am I ready? How do I know?
As soon as we begin working, the mantra to save for retirement is drilled into our daily lives. We work, save, work some more, save, work harder, accumulate more, rinse and repeat. Retirement is quite the opposite—the mindset is different, and the risks are different. Your family’s retirement decision involves financial and emotional planning before shifting out of asset accumulation mode into asset decumulation mode. This decision must not be made in a silo, and it’s imperative to consider these seven common retirement myths which might lead you astray.
MYTH #1: There is a magic “retirement” number, because commercials say so!
Retirement is different for everyone. We like to say that creating your financial plan is like building with Legos®, not a puzzle. A puzzle only has one “right” outcome. Everyone has their own set of Lego® blocks and principles influencing their life-vision. This means your future cash flow needs may be very different than someone else’s. It depends. Start by sitting down with your spouse or significant other and defining your vision for retirement. It’ll be fun! Your personal retirement vision will inform the assets needed to achieve it. We wrote a whitepaper to help get you started. Click HERE to check it out!
MYTH #2: To retire, you just need to save assets in a retirement account!
Traditional American thinking only emphasizes saving to qualified retirement accounts…IRA, Roth IRA, 401k, 403b, etc.…Wrong. Qualified retirement accounts are a great tool, but they aren’t the only tool, and you don’t technically require retirement assets to retire. What happens if you want to retire before 59.5 which is the minimum age at which a qualified retirement account may be accessed without an IRS penalty? Or, if you have only saved to a 401k and retire at age 65, what about the extra seven years of tax deferral still available? Diversifying types of accounts is important, too. The flexibility of a non-qualified “bucket” account can impact optimized savings for your whole life, including retirement.
MYTH #3: Save to the ROTH, income taxes will only go up!
This headline is as frustrating as the sensationalist “SELL NOW THE SKY IS FALLING” headlines. The ROTH IRA may be helpful, or not. It depends. Consider this: if you are saving for retirement, and your traditional IRA or 401k contribution saves you $3k in income tax, couldn’t you save and invest that amount too? Over 30 years, that’s an additional $90k not including any potential compounding returns. You can convert to the ROTH later on if it makes sense, but beware of ROTH headlines and advice from well-meaning CPAs which may negatively impact your broader financial picture.
MYTH #4: I’ll have no problem retiring. Can’t wait!
While “not working” sounds easy, it’s a lot harder than new retirees expect. Careers provide a great deal of fulfillment and personal satisfaction, so losing this primary source can be challenging. People want to wake up every day with a purpose. Not to mention, if suddenly both spouses are in the house each and every day, the new “togetherness” can create friction. So be purposeful about finding new sources of fulfillment: volunteer, try new hobbies, perfect old hobbies, join boards, work part-time, exercise, travel, maximize time with loved ones, etc.
MYTH #5: 95 or 100? I’ll never live that long.
Longevity risk is real, and people outlive their assets all the time. Aging adults are often more fearful of creating a burden for loved ones than winding up with a need for financial assistance. So, ensure your plan considers an extended lifespan, up to 100 years old, then stress test it. Living the last of your golden years with dignity and without stress is a gift to yourself and your family.
MYTH #6: We’ll just sell the house if *name of disaster* happens.
Real estate is often a large part of net worth, and it is an important aspect of overall wealth. However, it’s NOT an ATM machine. A house can be difficult to sell for many reasons including an extended listing due to poor selling conditions, price suppression, significant cash outlays for repairs, etc. Sometimes the housing market is hot, and sometimes it’s not. Regardless of the market, a real estate fire sale to raise urgently needed cash will result in a lower price. Don’t wait until you have an emergent need for the equity in your home to try and access it. A thoughtful financial plan will have already taken this possibility into account.
MYTH #7: Medicare covers the cost of long-term care.
No. No. No! Medicare absolutely does not cover the cost of long-term care. Medicare only covers costs associated with medical care, not basic custodial care which includes activities of daily living such as bathing, dressing, feeding, toileting, etc. Medicaid does provide coverage, but you must qualify for Medicaid and beds are often limited or even unavailable requiring an extended wait for access. Long term care costs can quickly add up, so evaluating your ability to self-pay for extended services or Long Term Care insurance is a critical part of any retirement plan.
Whether you’re considering retirement now or in 30 years, developing a comprehensive financial plan which includes retirement will empower you to live your best life today and through your golden years. And, even if you’re already in the midst of retirement, it’s never too late to develop and optimize a plan today. One thing is for sure, “Nothing will come of nothing.” (Shakespeare definitely said that one!)