Written by James Clarke
While Americans know full well they have to save for retirement, many have some mistaken assumptions that could end up costing them money when they’re older. When it comes to crucial aspects like healthcare, for example, most couples don’t realize that they’ll need over $280,000 in retirement savings for healthcare costs. Beyond healthcare, there are many other retirement aspects that Americans are uninformed about and here we’ll cover 5 of them.
My Social Security and Pension Will Be Enough
Banking on your social security and pension to be enough to support you in retirement is a terrible misconception. When looking at the numbers, Social Security provides a third of the monthly income for most retirees at about $1,471. Despite this, 21% of retired couples and 45% of retired singles still depend on Social Security for 90% or more of their retirement income. You shouldn’t count on your pension too much either as both public and private pensions are in trouble. While some are at risk of going under, others have billions in shortfalls and won’t be paying as much as originally promised.
I Don’t Need to Plan for Retirement Just Yet
While most people know they have to start their retirement planning early they tend to put it off. CFP and financial educator, Joe Catanzarite warns that people don’t start retirement planning until it’s too late or something happens that sends them scrambling. This can lead to costly mistakes and reactionary buying of financial products that they may not need and don’t help create a plan for the future. Therefore, Catanzarite recommends you start planning early, listing your priorities and goals and seeking advice from a qualified planner.
Borrowing from My 401(k) is a Good Idea
Borrowing from your 401(k) should only be as a last resort. Investopedia notes that you could lose investment earnings on the money you’ve borrowed and repay the loan with after-tax dollars. Should you lose your job you’ll also have to repay the loan faster, during your next tax return. Thus, it’s a good idea to consider other avenues like short-term loans, or a title loan to avoid the headache of borrowing from retirement savings. With title loans in Ohio having only minimal requirements for borrowers such as a vehicle title for collateral, it’s a comparatively low-risk move compared to borrowing against your 401(k). Online options are available depending on the state, with loaners Highway Title Loans, for example, servicing borrowers in Arizona, California, New Mexico and Utah, among others. With a short-term loan, you’ll also avoid potential penalties and tax implications associated with borrowing from tax-deferred investments.
I Won’t Have as Many Expenses
For mysterious reasons many Americans believe that their living costs will magically decrease by half when they retire. In fact, they could go up. You’ll still be paying for your home when you retire, and although your mortgage may be paid off, you’ll pay for insurance and property taxes. You’ll also need transportation, food, utilities and communications. Sure, you’ll spend less on fuel because you no longer have a daily commute but your car will still need insurance and possible repairs. As we mentioned above, healthcare could even make your living costs increase. Plan for maybe a 20% to 25% reduction at most.
I’m Going to Work After Retirement
Many people expect to continue to work during their retirement and two in three expect that work will be a major or minor source of income, based on a survey by the Employee Benefit Research Institute (EBRI). In reality, only half of those can do so and the rest leave the workforce due to job loss, and disability, among others. Therefore it is important to plan to retire 3 to 5 years before you think you will and delay taking Social Security benefits for as long as possible.