Retirement Myths: BUSTED

There are many common beliefs about retirement that aren’t true. Falling for them can have a negative impact on your retirement strategy. Let’s look at five common retirement myths: 

Myth One: I’m too young to start saving for retirement! 

It may seem far off to someone in their early 20s, but the truth is, it’s never too early to start saving for retirement. When you start early, you put the concept of compounding interest to work for you. Compounding interest allows you to earn interest on the money you’re saving for retirement and the interest you’re earning. The money you save in your working years could make up most of your retirement account balance when you retire! The longer that money hangs out in your retirement account, the more it grows. If you’re worried about market fluctuations affecting your retirement account balance over time, check out myth number two below. 

If you’re new to the workforce (or looking for a new career) check out our blog post on choosing the best employee benefits package. 

Myth Two: The market is too risky for my money. 

Throughout your career, you’ll witness numerous market cycles. When the market is up, your retirement account may thrive. Conversely, during downturns, you may not like what you see when you check your account balance – and be tempted to stop contributing. 

You know that popular saying, “It’s not the destination, it’s the journey?” Well, in this case, that’s not entirely true. When it comes to your retirement journey, what matters is how the market performs over time. History tells us that the market does go up in the long run. Typically, the market has more ups than downs, which helps the long-term investor stay the course. As you get closer to retirement age, you may invest more conservatively to protect your assets. When you’re just starting on your retirement journey, it’s beneficial to endure market downturns and capitalize on long-term growth. 

Myth Three: Social Security will cover my expenses in retirement.  

Unless you are extremely frugal and have no unexpected medical expenses, Social Security is not enough. The current maximum Social Security payout is $4,873. That’s IF you delay Social Security payments until age 70. If you begin taking Social Security at full retirement age, the monthly payout is $3,822. For most Americans, that just isn’t enough – especially if you have big plans for your second act.  

It takes years of thoughtful planning to be prepared for retirement. Check out the retirement planning calculators on BPAS University!  

Myth Three: Medicare will cover all of my medical expenses. 

Medicare provides optional medical insurance to adults aged 65 and older. You do have to sign up for the program and decide which plans work best for you – for example, prescription drugs are not covered under your basic Medicare plan – you’d have to purchase Part D coverage. There are as many misconceptions about Medicare as there are about retirement, but one thing is for sure: Medicare alone may not provide the comprehensive coverage you need. 

Additional options, including long-term care insurance to cover long-term services, like a nursing home, are worth considering. However, you may already have a powerful tool in your retirement planning kit: a Health Savings Account, or HSA.  

Health Savings Accounts (HSA): HSAs are a valuable tool for managing healthcare costs, especially with high-deductible health plans (HDHPs). Contributions to an HSA are tax-deductible, and funds can be used tax-free for qualified medical expenses, including copayments and medical supplies. HSA funds roll over year after year, which means long-term savings and growth! 

We know that an HSA is a great way to offset qualified medical costs and save for retirement (tax-free!) When used in tandem with Medicare, your HSA becomes even greater. Once you turn 65, HSA funds can be withdrawn at any time, for anything, without penalty. You will only pay ordinary tax on non-medical expenses. It’s almost like having a second source of income in retirement! 

While you can no longer contribute to an HSA after turning 65, utilizing HSA funds for medical expenses may provide a sense of security that Medicare alone can’t offer. 

Myth Four: I don’t need any help planning for retirement. 

Retirement planning is a complex process that requires thoughtful planning over the lifespan of your career. Whether you have big plans for retirement or simply want to kick back and relax, working with a financial advisor is a great option. They can help you create an initial plan and keep you focused along the way.  

Another thing to consider is your personal retirement strategy. We like the “BPAS U method:” 

B – Behavior: What does financial stability look like for you? What is your risk tolerance? What’s your investment style? 

P – Purpose: What are you saving for, and what does your retirement look like? At what age do you plan to retire? 

A – Assets: What retirement savings accounts do you have? Will you be taking Social Security benefits?  

S – Strategy: Based on your answers above, what will your retirement strategy look like? What steps do you need to take now to ensure a smooth journey to retirement? 

U – Update: What will your retirement plan look like in five years? Ten years? 

There are no right or wrong answers to these questions but taking them into consideration is a great way to evaluate where you’re at in your retirement plan.  

Am I on target to meet my retirement goals? 

 Myth Five: I can’t afford to save for retirement. 

It may seem that way sometimes, but the truth is, you can’t afford not to. In your 20s or 30s, it’s easy to become overwhelmed with the day-to-day expenses: daycare, groceries, your child’s extracurricular activities – and allow retirement planning to take a backseat. It’s important to remember that saving early is the best way to arrive safely and comfortably at your retirement destination. In your 40s or 50s, you may feel discouraged if you haven’t saved enough, or anything at all. Even if you feel that the final account balance may not cover the retirement of your dreams, it may help to pay off debt or provide you the opportunity to retire a bit sooner than planned. Every little bit helps. 

Taking advantage of your company’s workplace retirement plan is a no-brainer. If your employer offers a match, make sure you are contributing the maximum amount required. It’s recommended to save 10 to 15% of your income for retirement. That may seem like a lot, especially in the early years of your career, but consider this: If you contribute 5%, and your employer matches that, you’re saving 10%! As you progress in your career, increase your contribution amount. Being flexible is an important part of the journey. 

On the journey to retirement, there will inevitably be bumps and unexpected detours. A thoughtful strategy and the ability to remain flexible are the fuel you’ll need to reach your destination – no matter what retirement looks like for you. 

No matter where you are on the road to retirement, BPAS University has resources for you! Check it out at u.bpas.com.