4 Biggest Retirement Myths
The economy has changed the retirement rules, and today’s retirees may be getting out-of-date advice from the pros. We’ve identified four common myths about retirement planning and strategies for success in today’s environment.
Myth #1: $1 Million Will Be Enough
Retirees who use calculators to determine the “magic number” are running out of funds faster than they think. Why? Most calculators take one figure that is seldom predicted accurately (how much they’ll spend every year), and multiply it by another (how long they’ll live). However, this number can only be used as a baseline, not an absolute.
Myth #2: You’ll Spend Less When You’re Older
The idea of reduced spending during retirement has become a mantra … no more commutes, kids to feed or business attire. However, when you take into consideration the rising costs of healthcare as you age, the reality becomes stark. To prepare for that kind of realism, some planners recommend that clients do a test drive year, where they live for 12 months on a reduced, retirement-level budget..
Myth #3: Money Lasts Longer if You Move
Surprising to some, a lower housing price tag doesn’t guarantee low overall expenses. Though you may move somewhere with no income tax, the sales tax may be higher, and many communities are considering property tax hikes to meet budget shortfalls.
With so much influx, savvy boomers are looking at these numbers before contemplating a move.
Myth #4: Medicare Will Take Care of You
Many Americans rely on Medicare’s safety net, but many also don’t realize its many coverage limitations. For example, Medicare does not cover routine eye care, dental work and some prescription drugs. In addition, there is no coverage for nursing home and home-health care where an average cost for a private room was more than $75,000 per year in 2010.
Knowing this, many planners recommend that retirees cover what Uncle Sam won’t by utilizing supplemental MediGap insurance (typically runs between $150 and $250 per month), and long-term care insurance which can be purchased well before retirement starts.
Source: SmartMoney, April 2011