Many people think about retirement as something with hard and fast rules you must comply with, or else you won’t have a good experience. In fact, that couldn’t be further from the truth.
So much of retirement planning is individualized. What works for one person may not work for another, even if they live in the same region and have the same amount in their 401(K).
It’s time to take a sharp look at your own beliefs about retirement and see what’s true and what’s not. Here are five common myths people believe about retirement — but you no longer will after you read this.
1. You Can Survive on a Much Smaller Fraction of Your Income
This is based on the idea that your post-retirement expenses will only be 70 to 80 percent of your pre-retirement costs. But that’s not entirely true. You likely will want to spend money on travel and other leisure activities you didn’t have time for during your working years. And not everyone has paid off their mortgage in retirement.
Make sure you account for all your retirement expenses before you stop socking money away. Saving after retirement is still a good idea.
2. You Can Save Enough for Retirement by Maxing Out Your 401(K) Contributions
Remember what we mentioned before, about retirement being different for everyone. There’s no one set figure you need to hit to retire, but chances are maxing out your 401(K) won’t do it alone.
If you have a high income, you are used to a certain standard of living. You won’t be able to maintain that if your 401(K) is your only source of retirement income. Talking to an advisor about other options can help you diversify.
3. You Can Get a Part-Time Job to Make Up for Any Retirement Shortcomings
Many people think they’ll simply delay retirement or even find themselves a part-time gig after retirement to make up for the difference between their savings and the lifestyle they want to live. This approach doesn’t work, for several reasons:
Your health could fail and reduce your ability to work
Your company could lay you off before you retire — which is simply a reality of corporate life these days
Retired people have a hard time finding part-time work because many companies simply don’t hire older adults
4. You Should Wait Until You Pay Off Your Mortgage to Retire
No one wants to go into retirement carrying debt, but the reality is that there are plenty of reasons owning your home outright is not the best way to go. Perhaps you plan to move in a few years, or you want to have access to cash through a home equity loan. Having a liquid asset such as a home mortgage becomes an advantage.
5. You Need to Save $X Amount of Money Before You Retire
Once again, one size does not fit all in retirement. If you live in Central PA, you may need much less money than a resident of New York City but much more than someone in rural Idaho. You should think about how much you want to spend in retirement and make your goal based on that. Don’t worry about what number anyone else is aiming for.
Still not sure how you should save for your retirement? Reach out to Jay to discuss your options.