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5 Common Retirement Myths That Need Dispelling

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5 Common Retirement Myths That Need Dispelling

Here are some insights to help dispel five persistent myths about retirement.

Myth #1: I don’t need to revisit my withdrawal rate

Planning how you will create a retirement income stream can be challenging. Historically, a rule of thumb has been that a properly diversified portfolio can last 30 years given withdrawals of 4% or less and increased annually to match the rate of inflation.1

Recent retirees and individuals nearing retirement should consider taking a close look at withdrawal rates with their advisor, if they haven’t already. The choppy markets this year and prolonged low interest rates may have impacted returns in your investment portfolio. Tapping into investments — instead of a cash account — when assets are losing value is not ideal. This is because you need to withdraw a greater percentage of your portfolio to provide the income you want.

If you are young or mid-career, planning for a 3% to 4% withdrawal rate may, in general, be a reasonable approach over the long term. Your advisor knows your situation best and will provide a personalized recommendation based on your goals and needs.

Myth #2: Medicare will cover all my health care costs

Medicare covers most doctor visits and hospitalization costs. However, there are health care expenses it does not cover, including routine dental care, eye exams and hearing aids.

Here are options that could help you pay for expected and unexpected expenses:

  • Medicare Supplement Insurance (Medigap) from a private issuer can help fund remaining copayments, coinsurance and deductibles, for example.
  • Medicare Advantage plans from private companies who contract with Medicare provide all of your Part A and B benefits, excluding hospice. Many plans offer prescription drug coverage.
  • living benefits rider on a life insurance policy or annuity contract can enable you to advance part of the policy benefit to pay for expenses if you’re diagnosed with a life-threatening illness.
  • Hybrid policies that combine life insurance with long-term care benefits may help you pay for the costs of a nursing home, assisted living or in-home care — expenses Medicare does not cover. In general, these hybrid policies may be more affordable than traditional long-term care policies.

Your advisor will provide personalized advice for solutions that can help you prepare for health care expenses in retirement.

Myth #3: The Social Security program won’t last

The financial status of the Social Security program is an annual topic of conversation. The bottom line is that if you’re in or nearing retirement, Social Security solvency is not likely to materially affect you.

The Social Security Board of Trustees forecasts that financial reserves are able to pay full benefits until 2035, decreasing to 79% of benefits after that time. Potential changes to eligibility would address the shortfall, as revenue would continue to help fund the program. Changes to the program would likely be gradual and phased in over time. Ameriprise closely monitors new developments that may impact eligibility or benefits.

Social Security alone cannot provide enough income for most individuals. That is why 401(k) accounts and other savings vehicles are part of the retirement strategy your advisor may have recommended. However, if you are concerned about the uncertainty of Social Security retirement benefits, your advisor can help you build additional flexibility into your personalized retirement income plan. They can also recommend solutions for guaranteed income in retirement, if appropriate for your situation.

Myth #4: I can work as long as I need to

A significant number of workers end up retiring earlier than planned for a variety of reasons, including a disability or illness.

  • While 65 is the median age workers generally expect to retire, 70% of retirees report retiring earlier than that.
  • More than one in four of today’s 20-year-olds will become disabled before age 67.
  • Almost 70% of people over 65 will need long-term care at some point.

For those reasons, it’s probably best not to rely on working as long as you may need. With your input, your advisor will develop a retirement strategy that’s appropriate for your goals and helps protect your assets if the unexpected happens.

Myth #5: I’ll spend less in retirement

At first glance it may seem logical that your expenses could be lower after you retire. But that assumption could be harmful over the long term. For example:

  • Overspending can occur. Given the free time to socialize and pursue interests, it can be easy to spend more than you planned. Retirement can last 20 to 30 years or more, so it’s important to keep your lifestyle spending at sustainable levels.
  • Inflation adds up. The cost of goods increases over time, and annual Social Security cost-of-living adjustments are not guaranteed. It may make sense to remain appropriately invested in stocks to grow your assets and stay ahead of inflation.

Your advisor can help develop an investment strategy and spending plan that supports your financial goals throughout retirement.

Financial adviser Joanne Reilly, CFP ® , CDFA™, APMA ® (Joanne Reilly and Associates) is a Certified Financial Planner with more than 30+ years of successful experience helping her clients to build exciting futures as well as weather unexpected circumstances. In addition to holding the CFP designation, she also holds the CDFA (Certified Divorce Financial Analyst designation) as well as the APMA (Accredited Portfolio Management Advisor) designation.

Joanne, affiliated with Ameriprise and based in Boston, MA, is licensed to practice in multiple states throughout the country (N, S, E, W, as well as the mid-section). A graduate of Smith College, her previous positions included Bank of America (Senior Vice President, Investments and Insurance).

As an After-Fiftier, she loves Boston – but also enjoys travel, time with friends and family, tennis, music and the fine arts. She also makes time for an important priority in her life: The Haven Project. The Haven Project is a growing non-profit organization assisting the needs of homeless young adults on the north shore of Boston. Their mission? EQUIP and EMPOWER the growing population of unaccompanied and at-risk young adults ages 17-24 in the geographical area with the skills and support they need to achieve their life’s purpose.

Visit Joanne on her website at Joanne Reilly and Associates, on Facebook and on Linkedin.

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