Considering how complex retirement planning can be, it is not a surprise that people have quite a number of misconceptions about it. Below is a closer look at the three dangerous misconceptions that if believed, could land one into a serious bit of trouble.
1. You don’t need to start saving now because retirement is so far away.
Simply put, the longer you wait to save the more difficult it could get. Most people assume that there’s no dire need to begin saving in their twenties or thirties because they have about 30 or 40 years to put funds away. Here’s a good example there are two people with a goal of saving $1 million by the time they retire at 65. Both of these individuals religiously save money in their 40(k) while enjoying an annual return of 7% on average.
The only main difference between the two is that while one waited until they were 45 before they started saving the other began at 25. The one who waited until they were 45 to start saving must put away $1,920 per month whereas the one who started at 25 would only have to put away $381 every month. The goal is not attainable for is stared saving at 41 unless they are also contributing to an IRA.
Seeing as each year the money saved up increases by 7% the more you wait to start saving the more you are reducing the number of years of your money growing. Just start saving as much as much money as you possibly can, invest in a retirement account that is tax-advantaged, and the market will do the rest for you.
2. All healthcare expenses in retirement will be covered by Medicare.
A good number of people won’t have to pay a premium for hospital insurance, but prescription drug coverage and medical insurance have premiums, co-insurances, and deductibles, which is like most policies in health insurance. In as much as the federal health program covers many health expenses that include preventive services, inpatient hospital care, lab tests, and more in all its entirety still covers very little.
If you haven’t covered medical expenses in your retirement plan and unfortunately you get a terrible illness or injury your retirement could be derailed seeing as you might have to tap down on your retirement accounts. This will leave you off balance in the final years. This can be avoided by simply understanding what is not covered by Medicare and what is. Once you understand that you can then build healthcare costs into your retirement plan.
3. In retirement, only 70% of your pre-retirement income is needed.
People are different, and hence their needs differ as well, for one person it could be true that only 70% to 80% of their pre-retirement income will be needed. However, if one plans on doing a lot of traveling or living in an expensive city, it is more likely that more than 70% of that pre-retirement will be needed.
Retirement planning isn’t easy, that said it is important that one starts as early as possible and plan appropriately. It can be too late to catch up if you wait to rectify these mistakes, so start now as your future financial security is at stake.