Don’t get trapped by these retirement myths

4 MIN READ | #blog

Think you’re prepared for retirement? If you’ve been following conventional wisdom about retirement planning, chances are you’re not as well prepared as you thought you were. Many of the assumptions about how much money you’ll need to live comfortably are being turned on their head as people live longer. Living 20 years or more in retirement requires a different level of planning, which means that what may have held true decades ago when retirement was much shorter has now become myth.

Are you making the mistake of following outdated assumptions?

Myth: I’ve saved enough to live on.

How much do you think you’ll need to save for a worry-free retirement…$250,000…$500,000? According to a recent survey, 47% of current workers think they’ll need to accumulate at least $500,000 to retire comfortably.1

Let’s say you do have $500,000 in savings and you spend 20 years in retirement. That amounts to only $25,000 of principal a year to live on — including paying for any unexpected health care expenses. One current estimate is that a 65-year-old couple retiring in relatively good health in 2019 would need to set aside $285,000 to pay for Medigap and Medicare premiums (Medicare’s Part B and D aren’t free), and other out-of-pocket expenses.1 This $285,000 gives the couple a 90% chance of having enough money to cover their healthcare expenses in retirement.2 The $500,000 in savings may disappear much more quickly if one partner becomes seriously ill. And don’t forget to factor in inflation: What $25,000 a year can buy in the first year of your retirement may be a lot more than what it will buy 20 years later.

Fact: Take the time to figure out how much money you’ll actually need to live the life you want in retirement, add in some extra to account for inflation and unexpected expenses, and then try to save toward this more realistic goal.

Myth: Social Security is predictable.

If you have parents or grandparents collecting Social Security, you’ve probably been taking it for granted that since it’s a government program, you’ll get your fair share when it’s your time to start drawing benefits. Well, think again about whether that amount will be enough. Today, while Social Security accounts for about 39 percent of the income the average elderly American receives in retirement, for many this may not even be enough to potentially cover basic living expenses.3

By 2035, 2 the Social Security system’s combined trust funds pay for a portion of old age and disability benefits are estimated to run out.4 Social Security benefits won’t disappear completely at that time, because the payroll taxes still being paid by younger members of the workforce will be able to fund about 79% of scheduled benefits. When that happens, unless Congress acts to address the funding shortfall, Social Security will only be able to pay the benefits supported by current Social Security taxes.

Fact: Don’t count on Social Security as a stable income stream. Take the time to explore other sources you can depend on for guaranteed income.

Myth: You only need 80 percent of your pre-retirement annual income.

When planning for your retirement, clinging to the traditional rule-of-thumb that 80 percent of your pre-retirement income will be enough could leave you with a shortfall, even if you plan to live more frugally in retirement. The size of that shortfall will depend on your individual financial situation and health.

Fact: That 80 percent figure is a popular guide, but that’s all it is. How much money you’ll need in retirement depends to some extent on how you want to live. If you plan to travel, dine out frequently, or enjoy more recreational activities and hobbies, for example, you may need more income. Assisting adult children financially is another large (and often unexpected) expense that many retirees take on.

Myth: Stocks are too risky.

It’s true that the closer you get to retirement, the more conservative your investments should be. But that does not mean you should avoid stocks entirely. You need your money to grow at a rate that outpaces inflation so it will retain its buying power as long as you live.

Truth: Don’t put all your money in equities but keep a diversified investment portfolio that includes a suitable allocation to stocks. A financial professional can discuss your retirement income needs and risk tolerance, and help you determine what is appropriate for your unique situation.

The Bottom Line

The idea of trading in your briefcase and long commute for golf clubs and leisurely strolls on the beach may sound appealing, but if you haven’t done some careful retirement planning, there’s a real possibility you won’t be able to afford your retirement dreams. Making the right assumptions and ignoring the myths can go a long way in helping you to have enough to live on when the time comes.

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2021-124733 Exp. 8/23

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1 Fidelity viewpoints, 04/01/2019



All investments contain risk and may lose value. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.