The days of a tried and true pension are in the past. Here’s the reality according to the Economic Policy Institute: About half of American families have no retirement savings at all - and the median savings for people ages 56-61 is only $21,000. Most Americans do not have enough savings to comfortably retire, but knowing the facts – and ignoring the myths – can help you better prepare.
Don’t let common myths about retirement planning prevent you from taking steps toward a brighter financial future.
1. I Should Prioritize Saving for College Over Retirement
Saving for your retirement should be non-negotiable. Set a number — like 10% or 15% of your income — and stick to it. Only after that is set should you budget in college fund(s). Remember: Federal Pell Grants and scholarships exist to help subsidize higher education but there is no equivalent for retirement. Ignore this financial planning myth and put you and your spouse first.
2. My Taxes Will Be Much Lower
It’s true that you won’t be paying taxes on your regular paycheck — you’re in retirement after all! But you can expect to pay taxes on your Social Security benefits, investment income, property, pensions, annuity distributions, and IRA and 401(K) withdrawals. Careful retirement planning takes these taxes into account.
3. Social Security Will Cover My Cost of Living
In January 2020, the average Social Security benefit was about $1,500, according to the Social Security Administration (SSA). Would that cover your monthly expenses? Contrary to popular belief, Social Security is designed as a supplemental income. You can learn how to maximize your social security benefits (such as waiting to collect) but should have your own savings to rely on.
4. I’ll Retire on My Own Terms, No Matter What
Americans are retiring later and later. SSA reported that from 2000 to 2015, the segment of the labor force aged 65-69 increased from 30% to 37% in men and 19% to 28% in women. Whether by choice or because of need, you may end up working later in life than you anticipate.
However, the number of people who qualify for Social Security disability benefits is also on the rise; SSA estimates that 1 in 4 of today’s 20-year-olds will become disabled before retirement age. Despite advances in medical care, you can’t guarantee you’ll be healthy enough to work full time into your late 60s. Unanticpated health issues can quickly derail your work and retirement plans.
5. It’s Too Late to Start Saving
You already know saving early and often is best. But what if you’re 45 and are just now able to put money away? Get the ball rolling with a 401(k). Regardless of your age, you’re legally allowed to contribute $19,500 each year. When you hit 50, you are able to contribute more as a “catch-up contribution”. If you reach that limit, consider an IRA for added contributions.
No matter where you are in life, talk to a Farm Bureau Wealth Management Advisor to help ensure your money is ready for retirement when you are.