We all want to have a relaxed retirement, and because of this, it is easy to believe some retirement savings myths that can easily leave you broke.
Nowadays, you can access a lot of resources, and many of them have financial advice. Maybe it was Facebook, or maybe it was TikTok; you sure have seen content related to what you can do in retirement to save money.
It is true that some of these tips are great and can truly help you, but there are also some of them that can pose a threat to your financial security.
This is why today we want to present you with some of the most common retirement savings myths that can make you lose money. Read on and find out about all of them!
1. You can live just on your Social Security income
There are many people who believe in retirement savings myths, but this is probably the worst of them. You can’t count only on Social Security if you want to have a relaxed and carefree retirement. Sadly, this is the truth in most cases.
If you want to live off only Social Security, we can say that you will encounter only social insecurity. The benefit you receive is not much, and many times it might happen that you struggle to make ends meet until the end of the month.
Currently, Social Security pays retirees an average of $1,657 a month. That comes to around $19,900 annually. That hardly covers the cost of keeping the lights on or having some food on the table. How can you imagine that you will live a life of comfort with an income like this?
According to the recent pool, 1 in 5 Americans will not have any other source of income besides Social Security. The bad news is that if Congress takes no action, there is a chance that this income will be reduced by 20%.
If you plan to do any activities during your retirement, like going on vacation or pursuing your dreams, you can’t count on Social Security alone.
2. Retirement saving myths: Medicare will take care of all of your medical expenses
Medicare is the government’s health insurance program that becomes active as soon as you turn 65. It is a great initiative that helps a lot of people, but there is also so much infusion around it that seniors don’t really know what is covered by Medicare and what is not.
After you are 65 years old, this program will cover your doctor’s visits, your hospitalization, and your medication. This is amazing. But this program doesn’t include the cost of deductibles, long-term care like the one you receive in a nursing home for more than 100 days, or co-pays.
We want you to know this because, during retirement, the most costly expenses are those related to long-term care. People need this, and one of the retirement savings myths says that Medicare will cover it. But this is not true.
An assisted living facility’s typical annual cost of care is $54,000, whereas a private room in a nursing home is about twice as expensive ($108,400). Considering that almost 70% of the people who are turning 65 now will need long-term care, this means they will need to spend a lot of money that is not covered by Medicare.
If you want to be sure you will be covered later in life, the first thing you should do is get long-term care insurance as soon as you turn 60.
3. If you want to have money during retirement, you need to earn a lot of money
Maybe you’ve heard about all of those people who managed to retire with $1 million, right? And what do you think about this? What do you think about them? There is a chance that you think that all of them are six-figure earners, but this is just another one of the retirement saving myths.
Most of the people who manage to retire wealthy are the ones who decided to prioritize savings when they were still young, and they now have a large IRA or even a 401(k) in their bank accounts.
So, if you start thinking about retirement and where you will have money during retirement early, it is possible to live a relaxed life. We know that it is hard to save a lot of money at the start, but you can begin small.
This is a whole process; maybe you will not start by saving a large amount of money, let’s say $5000 per year, but you can most probably save $2000. This is easier to achieve. And maybe in the years that follow, as your wage rises, you can start saving more and more. This is how things work.
Next time you think that only rich people can save money for retirement, remember that it is only one of the retirement saving myths.
4. IRA or 401(k)?
Where should I keep my savings? What is better – an IRA or a 401(k)? The advantage of saving money in an IRA or 401(k) is that you can take advantage of the tax break. The IRS cannot tax the $2,000 of your income that you contribute to a regular IRA or 401(k) each year since these contributions are tax-free.
On the other hand, if you have your money in an IRA or 401(k), you have no choice but to leave it alone until you blow out the candles from your 59th cake. This means that you can’t withdraw them and spend them. This is more safe for those who know they tend to do this.
There is often a 10% penalty for early withdrawals. And for that reason, it’s wise to put part of your retirement funds in a different account. If you do this, you are sure to have some money that you can spend anytime you want without any penalty.
5. Is a regular account the safest?
Some say that investing is the best way to keep your money safe, but many people are scared of doing this because they are afraid of losses. If you are one of them, this means that you might think that keeping your money in a bank account is the safest option. But is it?
We are here to tell you that this is one of the retirement savings myths that you should stop believing if you want to have some money when you retire.
As determined by the S&P 500 index, the stock market has returned 10% on average annually during the last 50 years. High-yield savings accounts pay interest rates today, but they aren’t typical. They often pay 4% to 5%. Savings account interest rates might be as low as 3% on average over time.
This means that if you have saved $200 a month for 45 years at an interest rate of 3%, you will only get $223,000. This is not the best deal.
Managing your money in retirement is not easy. You need to consider a lot of things, and because of this, we think that having a guide will always be helpful. The Ultimate Financial Guide to Retirement Planning: Proactive Planning for Your Financial Future is a great book that you can easily purchase from Amazon, and we are more than sure it will help you.
You should also read: 6 Things You Should Always Buy Online to Save Money
