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You don't really know
how you're going to live in retirement until you start doing it. But
that doesn't mean you can't plan ahead, start to envision your
retirement lifestyle and begin to put pieces of the puzzle together.
There's lots
of advice, and many guidelines, to help you chart your way through
retirement. Here are seven common assumptions, and the reasons why some
of them are true, some are false and a few of them are in between.
1. Social Security will be there for you.
TRUE. Many workers in America have lost faith in Social Security,
thinking the system will be bankrupt by the time they become eligible to
collect their benefits. But the fact is, the current system is sound,
just the way it is, for another two decades. Yes, lawmakers may make
some modest cuts to extend the system. Or, if nothing gets done, there
could be deeper cuts later on. But Social Security will not go bust.
2. Social Security will pay the bills.
FALSE. The average Social Security retirement benefit is currently
$1,331 a month. That's $15,972 per year, which happens to be the poverty
line for a couple with no dependents. Meanwhile, the maximum benefit
for someone at full retirement age (currently 66) is $2,685, and even
for those who wait until age 70 to retire, the maximum is $3,501 a
month. That sounds better, but if you qualify for the maximum benefit,
you were earning over $100,000 annually, and so you're probably not
going to be happy on $32,220 a year.
3. Inflation is no longer a worry.
MAYBE. The pundits have declared that inflation is dead, and now
actually worry about a decline in the cost of living. Last year the
average consumer price index went up barely 1 percent. But remember the
1970s and 1980s, when inflation routinely came in at 5 percent or more?
Even in the early 2000s, inflation chugged along at closer to 3 percent.
So, $100 from the year 2000 is worth only about $72 today. If you
retire at age 66, and expect to live another 20 years, $100 will then be
worth only about $64 today, or maybe less.
4. The stock market will pump up your income.
MAYBE. The stock market has been ratcheting up since 2009, and it's
produced a lot of wealth for retirees who have invested in stocks and
mutual funds. But, as recent events remind us, while the stock market is
a good place to invest for the long term, it can put a pretty painful
dent in your finances in the short run. So stay invested with your
long-term savings, but don't keep any money in the market that you might
need in the next five years.
5. You can always keep working. MAYBE. Many baby boomers express an interest in working after they retire,
usually as a consultant or in a part-time job. This pans out for many
people, especially those who are able to keep options open with their
old company. But the fact is, only a small fraction of retired people
are actually working. Why the discrepancy? Jobs are not that easy to get
for people over 65, and as we hit our 70s we may find that we don't
have the interest or the stamina to continue in the labor force.
6. You'll receive an inheritance.
MAYBE. But even the most affluent aging parents can be bled dry if they
end up in a nursing home, especially if they don't have long-term care insurance.
The average nursing home costs several thousand dollars a month, and
fees can go much higher depending on where you live and what kind of
services are needed. But even without punishing care giving costs, many
elderly parents live well into their 90s, and simply spend down most of
their children's inheritance.
7. You can live on less money.
TRUE. It doesn't take a genius to figure out that you'll have less
money in retirement than you did when you were working. The good news is
that you need less money. You will likely pay lower taxes and won't be
subject to the payroll tax. Your kids are probably grown up, so you're
not supporting them anymore. And there are many ways to cut your bills, such as downsizing your home, traveling off season and taking advantage of a wide array of senior discounts.
Culled from US News
