The truth about retirement is that there is rarely a one-size-fits-all solution. There are many myths about retirement online and while some retirement planning concerns are situational, others are treated as fact much too often. Here are four myths about retirement that will be debunked!
You Need to Save at Least $___
Whatever number you use to fill in the blank, it will almost certainly be wrong. Being able to retire isn’t about reaching some arbitrary savings target – it’s about having enough money saved to live the lifestyle you want in retirement. To put it another way, the amount of money you’ll need to retire is determined by how much you intend to spend in retirement.
If you’re wondering how some people could retire in their 40s, it’s likely that their strategy relies on minimal annual costs rather than a large savings account.
You Need 70 to 80 Percent of Your Pre-Retirement Expenses
Another retirement myth is that retirees will have less spending or will be prepared to forego some of the comfort amenities they have grown accustomed to during their working years. While it’s true that when people retire, they are no longer required to pay payroll taxes or make 401(k) contributions, there is a misperception that those ‘savings’ will not be used on travel or leisure activities.
Most retirees want to keep their existing quality of living rather than reduce it. For wealthy individuals with high income and expenses, replacing annual earnings will require a considerable and ongoing commitment if they want to maintain the same lifestyle in retirement.
All You Need to Do Is Max Out Annual 401(k) Contributions
Most investors wish to continue living their current standard of living in retirement. Although making the maximum contribution to an employer-sponsored retirement plan such as a 401(k) is a fantastic way to minimize taxable income and grow wealth, those with high income are unlikely to retire with their chosen lifestyle on these assets alone.Â
In 2019, investors below 50 can contribute up to $19,000 per year, while those over 50 can give up to $25,000 per year. While you have a long time until retirement, your 401(k) savings won’t be enough to replace a six-figure income. Investors should consider opening a brokerage account if they want to invest and save beyond their 401(k).
You Can Work Longer if You Haven’t Saved Enough
Although it’s possible, two common external circumstances could derail your ambitions. Unexpected changes in your health or your spouse may limit your capacity to work, whether in your current or new job. Individuals in occupations with a physical component and/or the inability to work remotely such as nurses or doctors are at a higher risk as diseases or physical conditions could prevent them from completing the fundamental duties required for their job.
Layoffs or downsizing at work is always a possibility as it’s uncommon for the most senior personnel to be the longest-serving and receive the highest salary. If the company runs into financial difficulty, everyone’s job security is jeopardized.
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