January 24, 2012 — Retirement, like so many important parts of life, is a process. It is a project that requires planning, and occasionally a bit of trial and error. Last week we wrote about 7 things you need to do – right now – if you are going to successfully retire this year. This article will focus on some of the common misconceptions we think many people have about retirement. Many of the misconceptions turn out to be downers; we offer them in the hope that you can use them to avoid problems in your own retirement. For more on this topic we recommend Emily Brandon’s US News & World Report article, “7 Misconceptions about Retirement”, which provides some different perspectives.
1. I will retire later than I originally planned. Although according to the EBRI more than half of the workers interviewed said they would retire after 65, the actual trend is that more people are retiring earlier. The sad fact is many are retired not by choice. In 2011 the EBRI survey reported that 45% of retirees said they had retired earlier than they had planned.
2. We will be able to maintain the same standard of living we have now. The majority of Americans are woefully prepared for retirement. More than half of all workers report they and their spouse have less than $25,000 in total savings and investments (not counting their home and defined benefit plans). Only 42% have done a calculation to determine how money they will need – and have – in retirement. Many people agree that it takes at least $50,000 a year for a couple to have a comfortable retirement. With the average Social Security benefit being $14,124, it is clear that Social security alone will not be enough to achieve that standard.
3. Taxes are the main consideration in determining where to retire. Most retirees won’t have enough income to tax. And unless they have a very high income, the differences from state to state will not usually be that significant. Property taxes are very important, and are usually the biggest tax a retiree pays. If you have a large pension, however, how that is taxed could be a very important issue for you.
4. Our money will last as long as we will need it. See #2 above. Unfortunately, most people spend too much and take in too little. They end up going through their savings before they wanted to. Finding part-time employment could be the difference in having enough money and running out of it.
5. We don’t need to worry about long term care insurance. Baby boomers are living longer, and that means staying alive long enough to suffer chronic illnesses and dementia. Assisted living and home health care are expensive enough already, but wait until tens of millions of baby boomers start needing those services. The average cost of assisted living is $3000 a month, and can easily exceed that in many regions of the country. Medicare will take care of you in a nursing home – but only after you have burned through all of your assets. Too many of us assume old age and its problems can’t happen to us.
6. Staying in the home we own now is the best place for us. It might be the right decision for you if you have lots of money, are in good health, and only stay there for the next 10-15 years. If you are looking to reduce expenses and prepare for future health and aging issues, it’s far better to downsize now and move to a home that requires less maintenance, energy, property tax. You would also be smart to move to a home with universal design features, providing greater flexibility if you have reduced mobility (first floor master bedroom, no steps, etc.). Likewise if you are far from top-quality medical care, that could become a big issue for you.
7. In 20 years I will be able to do all of the things I enjoy now. Excuse us while reality intrudes into the Baby Boomer’s “we found Ponce de Leon’s Fountain of Youth” mind-set. If we are lucky, we will be able to do the things we do now. But the reality is that many of us will not. Our point is that you should keep an eye on the future, perhaps making sure you live in a place where you have options down the road. That could mean that someday you will move into a nearby Continuing Care Retirement Community (CCRC) where you indulge in less strenuous hobbies, keep your mind sharp, and have less stress performing the functions of daily living.
8. Moving abroad is a great way to save money. It can be a good way to save money, particularly if you live on the local economy and not in a gated expatriate community. Health care is usually much less expensive and sometimes better than you might think in many foreign countries. We recommend that if you retire abroad you do it for the adventure and the cultural experience, not the money. There are too many factors, like distance from friends and family, that would be conspiring against you.
9. Retirement will be the best part of my life. We certainly hope it is. But only slightly more retirees think their lives were better after retirement than those who think it is worse (29% vs. 25%), according to a joint poll from NPR, the Robert Wood Johnson Foundation, and the Harvard School of Public Health. Financial issues and stress are hypothesized as the possible causes of dissatisfaction. These survey results point out the need to get busy planning – for getting enough money and what you are going to do with yourself all day.
10. My life will be over when I retire. Not so! We hear so many great stories of people who have reinvented themselves in retirement. Life after your career does not have to be dull. But you do have to plan for it. See our series on how different baby boomers have turned retirement into the best years of their lives.
Comments? What would you add or subtract to this list. Do you disagree, or have a different experience. Please share your comments with your fellow members in the Comments section below.