Debunking the myths of retirement planning
Retirement planning is something that almost every person has to consider at some point in time, and there are many go to places to find information on this subject, unfortunately not everything you will read about is entirely true.
Here we will debunk a few of the common few myths about retirement planning.
$1 million is enough money for retirement life
This is a myth that many people tend to believe, and for good reason. After all, $1 million seems like a lot of money. However, a careful analysis reveals why this is a dangerous myth. Most people are expected to live for more than 20 or 30 years after the end of their employment, and would possibly hope to maintain their existing lifestyle.
$1 million translates to about $50,000 per year with a retirement period of 20 years. The amount is significantly lower for 30 years of retirement. Clearly, this would not be enough to sustain an extravagant lifestyle. So, it would be a better idea to have significantly more money saved up for retirement.
Spending will be significantly lower during retirement
This is yet another wrong assumption that people tend to make when planning for retirement. Unfortunately, most people discover too late that this is not the case. People often have a lot of free time during their retirement and this makes them want to do things that they previously did not have time for, like traveling and taking up new hobbies.
These new hobbies can end up burning through one's retirement savings faster than expected. So it is a risky assumption to make. Instead, you should take these into account during your retirement planning by coming up with a list of things you intend to do during your retirement years and carefully plan how you can finance them. Another idea is to ensure that you have some extra cash just for miscellaneous purposes. This amount can be used to cover spending that was not planned for.
Bonds and Certificates of Deposits are the best investments for retirement planning
It is important to avoid risky investments, when choosing an investment vehicle to put your retirement funds. For this reason, there is a myth that bonds and CDs are the ideal options. However, it might not be a good idea to put all your retirement funds in these investment options, because a significant amount of risk remains due to inflation.
Inflation might result in lower gains from retirement savings invested in bonds and CDs. It might also lead to a negative impact because the person retiring might end up having less purchasing power due to the loss of value.
Retirement should start at 65
Most people believe that they should retire when they are 65-years-old. It turns out this is one of the most common myths in retirement planning. Retirement does not necessarily have to start at age 65. In fact, the initial reason 65 was the golden standard for retirement was because many receive their full retirement benefits at that age, and there was very little incentive to continue working.
You can, in fact, continue working after 65, which gives you the benefit of a salary for a few extra years and helps boost your pension or retirement savings, depending on the statutory retirement age in your country.
Money is the key to a good retirement
Most people believe that the only focus when planning for retirement is money. However, this is far from the truth because money only facilitates retirement life. In reality, the main focus when planning for retirement should be happiness, molding relationships with family and friends as well as having a sense of purpose. Money is merely important for facilitating your desired lifestyle.
One of the ways to avoid being caught up by this myth is to plan your retirement things like family, friends, purpose and happiness in consideration. Make sure you do the things you love while still working and put your friends and family close to you. Also, plan to spend a lot of time with the people closest to you during your retirement years.
Medicare will cater to all your healthcare requirements during retirement
Health is a vital part of like but unfortunately, old age comes with a lot of healthcare demands. Most people believe that their healthcare package will cater to their healthcare needs during the retirement years but this is not true. Researchers claim that the average couple above 65-years-old requires about $259,000 to cover roughly 90 percent of their healthcare expenses during their retirement years.
Healthcare can be quite demanding and the only way to go around it is to allocate more funds for healthcare during retirement planning. These are just some of the myths and assumptions that people tend to make while planning for retirement and while there is no specific formula for accurate planning, they will be an important guide when you decide to start this journey.