Retiring is something that every United States worker hopes to do. In fact, it is seen as an accomplishment after completing a long and successful career. But, unfortunately, there are many misconceptions about retiring. Specifically, there are many misconceptions about saving for retirement. This is due to the widespread misinformation about different plans, individual situations, and other factors. So, in this article, we are going to clear up five myths that we frequently hear from our clients.
Myth #1: How Much to Save For Retirement
Perhaps one of the biggest myths associated with retirement savings is how much to save. This misconception stems from the fact that everyone will need a different amount once they retire. The amount needed will depend on the lifestyle you lived when you were still in the workforce as well as your personal retirement goals.
In order to maintain the same lifestyle, it is recommended to save 70 to 80 percent of your yearly income for the number of years you will be retired. For example, if you made $100,000 per year, you will want to have saved at least $70,000 for each year you expect to be retired. Even then, it is impossible to know how long you will live after you retire, as well as what expenses will come up. This is why we recommend saving as much as you can to prepare for any unexpected expenses that arise.
Myth #2: Social Security Will Cover All of Your Expenses
Along with needing to save more than people expect, it is also important you don’t exclusively count on social security. Many people believe that social security will cover all of their personal expenses in retirement. This, however, is typically not the case for many retired individuals. Social security will likely cover your basic living expenses, and perhaps some additional activities. But, for most it will not cover larger expenses.
Many people choose to fill their retirement years with fun experiences they weren’t able to do with a full-time job. Doing things such as long vacations, going to upscale restaurants, and buying their dream car is typical for retirees. After all, they are called the “golden years” for a reason. However, social security is not designed to support this lifestyle. It will likely only support basic living expenses, although the amount you will make depends on when you retire and how much you made. At the end of the day, having a healthy retirement savings plan can help enable you to live out the experiences you are dreaming of.
Myth #3: If You Have a Pension, You Don’t Need to Save For Retirement
Many employers offer their employees a pension plan as an employee benefit for when they retire. Some of these pension plans are very generous, as they can be up to 50 percent of your income. Many people believe that if they are the recipient of one of these generous pension plans, they do not have to save for retirement. But, this of course, is a myth.
As mentioned above, the generally accepted rule is to save at least 70 percent of your annual income for each year you expect to be retired. Some of the most generous pension plans are 50 percent of your salary. With that being said, at least 20 percent of your estimated expenses would not be covered. So, even if you do receive a hefty pension plan, it is vital you save as much as you can for your future. You don’t want to be put in a situation in which you live month to month off your pension. You deserve to afford fun vacations with your spouse, to be able to take your grandkids to lunch when you want, or to visit your grandkids if they are not near.
Myth #4: You Won’t “Work” Ever Again Once You Retire
Another myth about retirement is that you will never work again. The truth is, many retirees pick up another “job” once they retire. This could be something as simple as making investments in stocks, to picking up a few hours at the local hardware store or boutique. Retirees typically do this because they miss the hustle and bustle of the workday. As long as you enjoy what you do, there is no shame in picking up another job after you “retire” from your career.
Other times, some retirees have to go back into the workforce because they didn’t save enough. This should clearly be avoided when possible. It would be very disheartening to have to get another job in order to afford a comfortable lifestyle. But, it may be worth it in order to not leave debt behind for your family to take care of later on.
Myth #5: You Can’t Rollover Your 401(k)
When people switch jobs in the middle of their careers, a great concern is their 401(k) savings. From years of contributing money to an employer-matched IRA, it can be a valuable retirement savings account. However, many people think they are stuck at their jobs in order to receive the money saved. Thankfully, this can’t be further from the truth. It is possible to roll over your 401(k), in which you transfer the money into a new account.
To do a 401(k) rollover, you must transfer your savings to a new account within 60 days of a distribution. Also, you are only allowed to do one rollover per year, which can be a problem if you don’t stay at one job for longer than 12 months. It is best to do a direct transfer to your new 401(k) account, that way you are not subject to the taxes and penalties associated with withdrawing early. To learn more about how to rollover your specific 401(k) account, it is best to work with a financial professional to help ensure it is the appropriate move for you.
Retirement Myths and Questions
We hope this article explained some questions you had about retirement. As always, feel free to contact us for questions about your specific situation. Our team can look over your finances and help you find a suitable strategy for your retirement saving concerns.