When you’re just starting out in your career, retirement planning may not be the first thing on your mind, but it should be. You never know what might happen in the years to come that could make you need to access your money, so you need to make sure you have it saved up and stored somewhere safe and secure as soon as possible. Retirement planning can seem complicated at first glance—there are so many different factors to consider, such as how much you’ll be able to save every month or which investment vehicle will give you the biggest return—but it doesn’t have to be that way.
Myth #1 – Too early to start saving in the 20s
It’s never too early to start saving for retirement. In fact, the sooner you start, the better off you’ll be. The earlier you start saving, the more time your money has to grow. And, the more time your money has to grow, the more income you’ll have in retirement. If you want a specific goal for how much to save, an ideal number is about 15% of your income (although this can vary depending on individual circumstances). The earlier you get started, the less impact it will have on your lifestyle and how long it will take to reach that goal.
There are several types of retirement savings accounts you can use to grow your retirement funds. These include individual savings accounts, employer-sponsored plans (i.e., 401(k)s), and government programs such as IRAs or Roth IRAs. Many employers also offer a matching contribution, where they’ll match what you put in on a dollar-for-dollar basis up to a certain amount—any additional contributions are then solely up to you. One great option for saving for retirement is an employer-sponsored plan, because it’s automatic saving that happens before anything else comes out of your paycheck.
Myth #2 -Social security will take care of retirement needs
It’s a common misconception that social security will be enough to support you during retirement. In reality, social security only replaces about 40% of your pre-retirement income. That means you’ll need to supplement your social security benefits with other sources of income in order to maintain your standard of living during retirement.
If you’re concerned about whether social security will be enough to cover your retirement needs, there are a number of things you can do to supplement your benefits. One option is to delay filing for social security until you reach full retirement age (or even later). This strategy allows you to claim higher monthly checks and reduces the payments that get paid out after your death. Another way to increase your income in retirement is by participating in an employer-sponsored 401(k) or 403(b) plan, which is a tax-advantaged savings plan offered by private employers. Contributions made into these plans can be matched dollar-for-dollar by your employer up to a certain limit.
Myth #3 -Need less income after retirement:
Many people believe that once they retire, they will need less income than they did while working. After all, you won’t have to save for retirement anymore, right? Wrong. In fact, you may need even more income during retirement than you did while working. Why? Because you’ll have more time on your hands and will likely want to travel or take up new hobbies – all of which cost money. So don’t underestimate your retirement income needs – plan for them accordingly.
But that doesn’t mean you need to scale back your lifestyle during retirement. In fact, having more time to travel and take up new hobbies could actually increase your income needs. It’s all about how you manage your spending throughout retirement. One of the smartest ways to do so is to adjust your lifestyle early on instead of waiting until later in life, when it may be more difficult or costly to make changes. For example, if you want a luxury car now but are worried you won’t be able to afford it later in life, consider buying one now and keeping a record of what it costs each month – then determine how much income you’ll need per month after retirement in order to purchase a similar model later on if necessary.
Myth #4 -Medicare will cover all health expenses
One of the biggest mistakes people make is assuming that Medicare will cover all their health care costs in retirement. Unfortunately, this is not the case. While Medicare does cover some medical expenses, it doesn’t cover everything. You may still need to purchase a supplemental insurance policy to help cover the gaps in coverage.
If you don’t purchase a supplemental policy, be prepared to pay for all of your medical expenses out-of-pocket. These expenses could include paying for prescriptions and doctor visits, as well as any dental work you need done. Depending on how much health care you need in retirement, those costs could really add up over time. So even if Medicare does cover most of your healthcare needs, it’s a good idea to find a supplemental insurance policy that works best for your situation.
Myth #5 -Work until full retirement age
The later you start saving for retirement, the harder it is to catch up. If you want to retire comfortably, you should start saving as early as possible. Full retirement age is the age at which you become eligible for 100% of your Social Security benefits. For most people, that age is 67. However, if you were born after 1960, your full retirement age is 67. You can start receiving benefits as early as 62, but your benefits will be reduced by 6.67% per year until you reach full retirement age.
What if you’re not close to full retirement age? That’s okay; it’s never too late to start saving for retirement. However, if you really want to retire comfortably and have a nest egg that lasts as long as possible, don’t wait until your 60s or 70s to start saving. Even though Social Security benefits increase at full retirement age, those increased payments are based on a percentage of your lifetime earnings. If you wait too long to save, there won’t be enough time for those payments to make up for lost years of savings. Additionally, if you delay retirement past 70, you lose out on inflation adjustments in future years.