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Founding Father John Adams once wrote,Facts are stubborn things and whatever may be our wishes, they cannot alter, facts and evidence. Facts are especially handy for dispelling myths that could affect your retirement savings. First up today we’ll arm ourselves with those facts and do away with 5 retirement myths.
The first myth we want to get rid of is the idea that the withdrawal rate you anticipate for your savings in retirement is a set it and forget it kind of thing. In reality, so much can happen between now and the day you quit working. It’s prudent to revisit your calculation periodically. If you’ve already retired (or are about to), you’ll want to get with your advisors regularly to review your anticipated withdrawal rate. You’ll take into account how stock prices and inflation may impact your returns. You may have to make adjustments to your retirement income. Younger folks might want to go with a safer withdrawal rate of 3% to 4%; but it could be higher if you faithfully contribute 10 to 15% of your income to your retirement plan. Again, meeting with your advisor will help you set up a strategy that meets your goals and needs.
The second retirement myth is that Medicare will cover all of your health care costs. It’s a very helpful program for many retirees but was never intended to cover 100% of health care costs. Deductibles and copayments can be high and Medicare doesn’t cover dental, vision and hearing conditions. So you need to factor in the cost of a Medigap policy or a Medicare Advantage Plan from a private company to supplement Medicare. That will cover the cost for Medicare Parts A, B, and C, but you also want to add Part D coverage for prescriptions.
Our next retirement myth is that the Social Security program will collapse and not be there for you when you retire. While the program definitely has solvency issues that need to be faced, if you’re in or nearing retirement, they’re not likely to affect you.It’s now estimated that, without changes, Social Security’s financial reserves will be able to pay full benefits until 2034. At that point, benefits would have to be decreased by about 25%; but will that actually happen?
The next retirement myth is that you can simply keep working as long as you need to. The facts don’t support this and the COVID pandemic is a case in point. A recent survey showed that 7% of those responding retired earlier than expected due to the pandemic. Another 11% said they now plan to retire sooner than expected. And here are two more surprising statistics: nearly 25% of people in their 20s will become disabled before reaching full retirement age at 67 and nearly 70% of people over 65 will need long term care at some point during retirement. The point is, you have to plan onnotbeing able to work as long as you’d like.
The last retirement myth is that you’ll simply alter your lifestyle in retirement so that you don’t run out of money. Not that it’s wrong to do that; it’s actually quite wise. But you may not find it as easy as you think, for several reasons. You’ll have more time on your hands to socialize, which can lead to overspending. There’s a temptation to take more trips, especially if the grandchildren live out of town. You might want to pursue a hobby that leads to unplanned spending. Then there’s inflation, which Ronald Reagan once called, the cruelest tax of all. Right now, the Fed is predicting a 2% annual inflation several years into the future. That might not seem like much, but remember, that’s acompoundingrate, so it really does add up over time.
On today’s program we also answer your questions:
My husband and I have no will. Is it really necessary to visit an estate planner when everything that we have is in both of our names? I’m also listed as the sole beneficiary on his retirement plan. So, are we going to run into some problems under those circumstances?
I have a mortgage and had to have it modified. I was behind on some of the payments because I was laid off.But they had me do a second mortgage, which is like a lien on the property.They said I couldn’t pay the second mortgage off until I paid off the first one. So what if I wanted to refinance? Is there any way to get around that?
I just received an offer to have our mortgage rate lowered to 3.125%. Can I get a better deal?
Remember, you can call in to ask your questions most days at (800) 525-7000 or email them [email protected]. Also, visit our website atMoneyWise.orgwhere you can connect with a MoneyWise Coachanddownload free, helpful resources like the free MoneyWise app.
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