Retirement is a marathon, not a sprint. According to Forbes, the average expected length of retirement is about 19 years for males and 21 years for females, assuming retirement at age 65. But 1 in 10 retirees live to see their 95th birthdays, and that proportion is likely to grow as medical screening and treatment improves.
Planning for retirement is a marathon, too. You need to start early enough—and stay disciplined enough—to ensure that you have ample savings and income after hanging up your hat for good. Avoiding these five common retirement myths can help you beat the odds and heighten your chances of a comfortable, healthy final act.
- You Can’t Beat the Market
With a disciplined, well-informed investing strategy, it is possible to beat the broader market. That’s not an excuse for putting off the day you begin saving for retirement in earnest, of course. And it’s never wise to expect to beat the market over long periods.
- Bonds Are Always the Safe Choice
Conventional wisdom holds that bonds are always safer than stocks, but that’s not always the case. In“The Little Book of Market Myths,” investing guru Ken Fisher notes that bonds can be just as volatile as stocks, especially over longer periods. Therefore, bonds should be viewed as one component of a diversified investing strategy, not a be-all-end-all insulator against wild market swings.
- You’ll Have to Leave Your House
Most retirees expect to downsize once they leave the workforce. That’s not necessarily a bad call. However, rather than downsize because you need to free up the equity in your house, consider less disruptive options that don’t require radical lifestyle changes. Many retirees already are: U.S. News & World Report finds that less than 2% of 65- to 74-year-old owner-occupants moved during 2010. If the thought of leaving a lifetime of memories behind troubles you, put it off.
- You Won’t Have to Worry About Healthcare Costs in Retirement
65 is the magic age. Once you’re past legal retirement age, you no longer have to worry about crippling medical costs—or paying anything out of pocket at all. Right?
Nope. Not even close. Medicare is frightfully complex, but this chart offers a high-level overview of what it does and doesn’t cover.
Basically, if you need to stay in the hospital for a long time, you’ll be responsible for an escalating share of the costs. Eventually, you’ll shoulder the entire burden—thousands of dollars per day. That’s a great way to burn through a nest egg in a hurry. Unless you have supplemental insurance, you’ll also be on the hook for 20% of inpatient and outpatient doctor services.
Needless to say, you need make sure that you’re using private insurance to plug any expected gaps in your medicare coverage. Some employers still offer such coverage to retired employees, but that’s far from guaranteed. If you’re not sure whether you’re covered by your current plan, speak with a financial adviser or CMS.
- You’ll Only Need a Fraction of Your Pre-Retirement Income
The conventional wisdom holds that retirees only need a portion of their pre-retirement income to live comfortably after leaving the workforce. According to The Financial Mentor, some “experts” recommend replacing as little as 70% of one’s income.
Assuming your children are self-sufficient and out of school, replacing just 70% of your income in retirement is probably doable. But it’s far from assured that doing so will produce comfortable or even healthy outcomes for you and your spouse. When developing an investing strategy for retirement, it’s best to shoot for 100% income replacement, even if the final number is a bit lower.
What are you doing to shake off those persistent retirement myths and ensure that your golden years are as comfortable and prosperous as your working years?