10 Myths That Could Sink Your Retirement
Category: Financial and taxes in retirement
January 28, 2023– Myths, misunderstandings, and just plain faulty thinking occur in retirement, just like they do in every other phase of life. This “10 Myths That Could Sink Your Retirement” article explains that, unlike earlier stages in our careers, where there might be a second chance at recovery, a mistake in your retirement can be serious. That’s why it is key to avoid these common retirement myths and mistakes. Many, but not all of them have to do with money. We welcome other people’s insights on the best and worst decisions they made in retirement – please add them to the Comments section below.
Top 10 Retirement Myths and Mistakes
Assuming you will work ’til you drop. Asked when they think they will retire, most people say between 65 and 67 – and many much later, if ever. But in the actual world, a Gallup poll said the average retirement age is closer to 61. The reasons for this vary greatly, but common ones are being laid off unexpectedly, or getting injured or sick and unable to work. The ramifications of retiring earlier than expected are serious, because it usually means that expected retirement savings do not materialize.
Social Security will take care of you. The Social Security benefit is an amazing one, but it was never meant to be a total income replacement plan. The Center on Policy and Priorities estimates that someone retiring at age 65 will have about 37% of their pre-retirement income replaced by Social Security. Lower income people will get a slightly higher percentage, since these benefits are progressive. So, don’t plan on getting by just on your Social Security.
Claim Social Security as soon as you are eligible. We know many people who swear by this plan, and have all kinds of numbers to back it up. But the fact is that the longer you wait to claim (up until the max at age 70), the higher your benefit will be. By waiting from age 66 to 70 to claim, your benefit will increase 8% a year, and be indexed for inflation as well. And even if you die before the breakeven point (around age 80), your spouse will continue to get your benefit if higher. The SS Administration estimates that a person would receive 70% more per month by waiting from age 62 to 70.
It doesn’t pay to work once you start Social Security. If you claim Social Security before your Full Retirement Age (67 for people born 1960 or later) some of your benefits will be reduced, if you make enough money. If you are under full retirement age for the entire year, the SSA will deduct $1 from your benefit payments for every $2 you earn above the 2023 annual limit of $21,240. In the year you reach full retirement age, SSA deducts $1 in benefits for every $3 you earn above the 2023 limit of $56,5290. BUT, you haven’t lost that money – it will be paid back to in the years after you reach Full Retirement Age.
A low tax state is always better. A state with low taxes could be a better choice, but not necessarily. For example, if your income is mostly Social Security and retirement savings, you probably won’t have to pay much state income tax. If you don’t like the environment and can’t have the lifestyle you want in a particular state, then low taxes might not be worth it. Low property taxes, like those in many southern states, might be a significant advantage vs. more expensive states.
Put all your money in fixed income when you retire. Certainly this is the safest way to invest, assuming you stay out of volatile bond markets. But people are living longer and longer, and you might want to consider keeping some of your investments in equities or balanced mutual funds, since over the long term, the stock market has brought in the best returns. If that works out in your case, you will have more to spend and keep up with inflation.
The best plan is to retire near your children. Again, this can be a great idea. But, unfortunately, we know of too many retirees who moved to be near their children, who then moved. Or, in other cases, where being close was too close. It might be better to think of living in 2 places, if you can afford it, to keep your options open. Or, assess how much you might like to continue living in the area near your children, should they decide to move away.
HOAs are to be avoided at all costs. We see many people who are adamant about not having an HOA – Home Owners Association. They don’t like the costs, and they don’t like the rules and the politics. There are HOAs that are not well run, true enough. But efficient HOAs with good leadership make communal living better. They establish reasonable rules, protect your investment in the community, and efficiently spread the cost of desirable amenities and services over many different owners.
The best way to stay independent is to live by yourself. Everyone knows stories of the elderly parent who refuses to move out of their house. That might be great, until they fall, have a stroke, or worse, because no one was there to check on them. Living by thenselves is what some people want, but to be safe you need a support system, including a way to have meaningful social interaction as you age.
You can live on less when you retire. It is certainly possible to spend less when you retire, and some people have no other choice. You might not be going out to lunch with working friends, but you might do that with your golfing buddies. In the post-Covid era you don’t need work clothes, but you will probably want to make the trips you dreamed about. Medical expenses and insurance can add up to more than you think. As we age, hiring a health care aid, or going into assisted living gets very expensive.
Bottom line
All that said about mistakes, if you make one in most cases you can still recover. The thing to do then is be realistic and admit to yourself that you need to make some kind of adjustment. Retirement is your opportunity to live the life you want to live. So go into with your eyes open – not only to the possibilities, but also to the mistakes that can be avoided. Enjoy!
For further reading:
How Much Can You Work and Not Affect Your Social Security
Comments on "10 Myths That Could Sink Your Retirement"
Larry says:
Another myth regarding children: That you should buy a home with enough space to accommodate your children and grandchildren when they visit. Such wishful thinking (about how often they will visit) is expensive. Should you really add six figures to the cost of your larger home for the two or three weeks a year the family will visit? They have busy lives, with jobs, school and other commitments. Renting them rooms nearby via VRBO, AirBnB and Holiday Inn when they do visit will save you money you can otherwise contribute instead to your grandkids’ 529 plans.
Admin says:
Speaking of how to invest your money for the long term, Smartasset.com recently wrote about how long a portfolio of $1.5 million would last if you took $60,000 annually. If you put it all in fixed income, it would run out after 18 years, adjusting for inflation. A bond portfolio woud probably go for 25 years. But if you got the long term S & P average return in stocks, your $1.5 million would last indefinitely. Of course picking individual stocks is risky, index funds a much better bet.
Joanna says:
I moved to be near familly, in this case my sibling. It did not work at all and I am now going to have to move again. Make sure your family is actually who you think they are and you are moving to a place that suits you!
Roberta says:
To me, the biggest myth is the one I fell for. To move when you retire. I gave up a perfect location to move somewhere warmer, cheaper, prettier, lower taxes etc etc. I am now spending the rest of my life regretting that decision. I can never move back there because it is now too expensive. I had it all. Walk everywhere, doctors, dentists, world class hospitals a few blocks away. I was near my family. I am heartbroken.
Daryl says:
One of the unspoken myths is that you better make all the right decisions quickly before retirement because then you’re stuck, like planting a tree. Yet if I’ve learned one thing it’s that until you ARE planted in the ground it’s not too late to make changes. And don’t let society brand you with an expiration date barcode on your behind. Each time a news segment or “friend” tried to “warn” me of another thing I wouldn’t be able to do after age 65 they’ve been wrong. I wish I would have slapped them right then for scaring me, and me for believing them. There are little solutions out there that incrementally get you closer to your goal, and it’s not a sin to change your mind.
Caps says:
Daryl.....you and the folks like you have a good point. However, from what I have witnessed and experienced.....Moving was very strenuous on our bodies and minds. The healthier you are the better. Our backs (I thought it was my back.....turns out it was my kidneys) are worn out from sports injuries and car accidents, making that process very tiring. Another thing....moving at retirement age allowed us to be active in our new communtity and church while we still had the time and energy. It gave us many opportunities to develop good friendships and experience trips and events we would not have known otherwise.
I never wanted to spend my retirement in the doctors office, but that is exactly what happened to me. At 64, my kidneys quit from a rare blood disease. I've been at more appointments than you can imagine, including chemo and dialysis several times a week. There is light at the end of the tunnel, as I am nearly ready for a transplant! The prayers and the doctors here have been excellent. I am so thankful to be married through all of this, because I wasn't able to drive myself. DH is also a good match for many reasons, including his kidney! We now have even more reasons to cement our relationship! We can't wait to travel again, so we don't totally SINK our retirement!
Daryl says:
Looks like you’ve found several solutions that are bringing you closer to your goal of being active and traveling again, the opposite of resigning yourself or giving up. Good for you and best wishes for a speedy recovery!
Caps says:
Thank you, Daryl :-)
Admin says:
Reading these comments has been interesting, you all bring up some great points. The situation that Roberta finds herself in is one of the most poignant. I do have some friends who have moved somewhere warm to retire, and then one person in the couple tends to regret the move. That is hard too. In the case of a single person, presumably the reason they can't move back is because real estate is too expensive. But I wonder if there might be other options to come back, or maybe find another location that is similar. Maybe sharing a house or an apartment with someone. Or renting. Or, buying a home with HECM (reverse mortgage) financing. Her situation does highlight the importance of staying somewhere for a while to test the waters. I do wish her luck and hope her situation improves
Daryl says:
Adding to your comment, John, where do you begin to build the human resource list to help you? Especially when you don’t have a support system to help you figure out what you really want and how to get there. Are you really missing family and your old hometown, or are you nostalgic for something familiar and might be happier seeking community and building a new “family” in a nearby location that has the amenities you miss from your past, and still contains all the wonderful things you enjoy in your new location. Is there a shortcut, a true relocation specialist? When first retired I was obsessed with finding a condo near the ocean, but didn’t realize I would actually be happier living near family and visiting the ocean now and then rather than living near the ocean and visiting family now and then.
Jan says:
I'm not sure what the "myth" this situation address -- perhaps thinking that caregiving for elderly parents after retiring is no big deal and will work itself out.
I "retired" in 2014 at 66 and unexpectedly began flying between coasts to help manage Mom's care with frequent procedures, surgeries, rehab stays, and her steadfast desire to remain in a large waterfront condo. Sis (was still working) and I fortunately could tag-team responsibilities, and I could continue my retirement writing pursuits (which luckily I could do anywhere).
But the situation continued years longer than anticipated especially given Mom's serious health issues. Mom died a year ago at 93. Years of extended long-distance travel, caregiving and her home maintenance drained us physically and emotionally. Not to mention the expense. While grateful that we helped her live her last years where and how she wanted, it took a toll. Looking back, we likely wouldn't have done things much differently. For me, this scenario was recently repeated with an extended cross-county stay to help Sis recover from two surgeries she didn't anticipate.
These situations are not uncommon.
The message here is to at least expect and allow for the unexpected with family caregiving, particularly if distance is an issue, and remain flexible about what it may mean for you, and your life, health, finances, and family.
Admin says:
Thank you Jan for this wonderful message. Obviously you sacrificed a great deal in order to help your mother, I bet she was very appreciative. Goes to show that retirement surprises are like being in a fun house - never know what will come around the next corner. As you say, being flexible and positive are the keys to whatever the world throws at you.
Also points out in our lives that it is important to try to take it easy on the next generation or other potential support people. We might really want to stick it out in the old family manse, but it disrupts other people's lives too much it can be a selfish act. If we live long enough, the end will probably not be pretty.