Retirement planning is a tricky business. Regardless of your current status in life, you have to prepare for a future that’s hard to predict. That doesn’t mean you shouldn’t try it. You’re never too young to plan for a future where you’re no longer working for money.
The earlier you prepare for retirement, the better off you’ll be. However, you might be scared to plan for retirement because people around you have fed you misleading information.
9 Popular Misconceptions People Think About Retirement Planning
Here are some common misconceptions about retirement planning and facts that debunk them.
- “I’m too young to plan for my retirement.”
When you’re young, it’s normal to believe that retirement is still so far off. In reality, it’s never too early to plan for your golden years. It’s better to start retirement planning at the beginning of your career, even if you’re still not earning a lot. You likely have fewer responsibilities and more energy to work and grow your income and savings when you’re young.
Your savings can grow exponentially over time, thanks to compound interest. The earlier you save for retirement, the more financially secure you’ll be in your later years.
The key to early retirement planning is knowing and setting realistic goals. Hire a financial advisor to help you achieve these goals thoroughly and properly.
- “I’ll have to stop working for money once I retire.”
It’s normal to think that retirement will stop you from working, given that your body and mind will likely not be as good as when you were younger. However, retirement won’t completely close your doors to employment.
According to the U.S. Bureau of Labor Statistics (BLS), 9.8 million Americans ages 65 or older are still part of the workforce as of 2021. Another survey found that 46% of Americans aged 60 to 75 plan to work part-time after they retire. They said working during retirement can help maintain their standards of living during their golden years.
Just as many retirees can still go to work, you can too. You can work part-time, for yourself, or on a contract basis. You can also work as an independent contractor or consultant if you’re an expert in a specific field.
- “My current investments will secure me for life.”
Are your current investments or plans as secure as you think? You might be a victim of retirement fraud if you’re not vigilant with them. Before investing your money, ask investment and plan providers about their products and services and thoroughly research their company.
Beware of unsolicited offers, actively monitor your investments, and question your financial adviser about your principal or profits. Being proactive with your investments and plans ensures that your retirement fund will be secure until you use it.
- “I don’t need to save a lot since retirement is only a short period.”
You may believe that retirement is short, but think of it this way: the average retirement age is 66 years old, and the average life span is 76 years. You’d need enough funds to cover your needs and expenses for at least ten years, which is a considerably long time, especially if you don’t plan to return to work.
Trust financial advisors when they say you should save for retirement as early as possible. Although you may have difficulty saving your money now, you’ll thank yourself later when you enter your golden years and have less energy to earn income actively.
- “I should invest too conservatively with my retirement savings.”
Investing too conservatively with your retirement savings is often the result of one or more of these misconceptions:
- You think that all stocks are risky.
- You don’t know what a stock is or how it works.
- You’ve heard that you should invest in index funds to protect against market volatility.
While low-risk portfolios may work well for some people, they aren’t right for everyone and won’t always be right for you too.
Have enough risk in your portfolio to earn interest income and capital gains on investments as they appreciate over time. Similarly, manage your investment risks to ensure you don’t experience massive losses.
- “I shouldn’t have debts or obligations once I retire.”
Even if you’re debt-free and have a healthy nest egg, that doesn’t mean you won’t owe money when you retire. You’ll still need to pay for food, shelter, transportation, and health care. To give you some perspective, American retirees spend an average of $11.3k on healthcare annually.
Additionally, you may have racked up debt to pay for necessities during your working years. Once you retire, you’ll likely still pay some outstanding debts like your mortgage or medical bills from treating a chronic illness. Consequently, you might get stressed worrying about these debts and your retirement expenses if you don’t have enough savings for them.
- “My retirement plan should be the same as others.”
Getting caught up in the “herd mentality” surrounding retirement planning is very easy. We tend to follow whatever path has been set before us without questioning why we’re following it at all. However, this mentality can lead to some serious mistakes and missed opportunities—and maybe even losing money.
Rather than blindly following what others are doing, take a moment and consider if it’s right for your situation. Every person has unique circumstances that will affect their overall goals and plans for retirement. As such, plan for retirement based on your situation and living standards.
- “Social Security will provide enough income.”
Social Security is not a pension, and it’s not guaranteed to be there for you in retirement. It’s an income stream that will only provide a certain amount of monthly money.
Suppose your goal is to have enough income from Social Security to cover your living expenses in retirement without having any other assets or sources of income. In that case, you’ll need to plan for more than just Social Security. Diving deep into a social security guide can also debunk common myths and provide you with realistic expectations about what Social Security can and cannot do for you in retirement.
- “I can leave retirement planning to the last minute.”
Any financial adviser would tell you that preparing for major life milestones at the last minute is harmful. These milestones include marriage, parenthood, and retirement. The longer you delay your retirement planning, the harder it will be to manage your expenses and investments in your later years.
You should be aggressive about saving money and meeting all other financial goals. There’s also the possibility that something could go wrong with your plan, so it’s best to take care of things sooner rather than later.
Plan for Your Future Today
It’s important to remember that there are no hard and fast rules regarding retirement planning. One person’s retirement plan may not fit your life and circumstances, so take these tips as starting points rather than rigid rules. You’ll find retirement planning less daunting once you know how to do it properly.