When today’s baby boomers are ready to retire, some experts predict there may not be enough people left in the work force to fully fund Social Security benefits. However, you’re never too old to start saving!
Like many, you may have thought about retirement planning without actually doing as much as you’d like to do-at least not yet. Even if you have been financially preparing and have amassed what you think is an adequate retirement income, think again. Often, people will base their retirement estimates on several mistaken, but commonly held assumptions about retirement and what various resources will provide. In many cases, the reality of retirement turns out to be quite different from what these common “retirement myths” would lead one to believe.
I’ll have Social Security to support me.
Reality: Wrong. Social Security was never designed to cover income needs, but rather to supplement your pension and personal savings. Here’s an idea of what you can expect from Social Security: if your annual earnings are $25,000, $40,000 or $60,000, Social Security can provide 50%, 27% and 23% of your annual income, respectively (refer to Table One). However, some experts have estimated that by the time today’s working baby boomers are ready to retire, there may not be enough people left in the work force to fully fund Social Security benefits.
My living costs will be lower when I retire so I’ll need less money.
Reality: Many times, just the opposite is true. The only costs that may end are mortgage payments and the college tuition you may now be paying. Health care costs could rise, especially if you no longer have employer-sponsored medical/dental coverage. Additionally, you’ll want to pursue your favorite hobbies, recreational activities, and “dream” vacations.
I’ll have my company pension to tide me over.
Reality: Don’t count on a pension as your main source of income. Most defined benefit plans are geared toward providing a replacement ratio of between 40% – 60% of your final average salary. This amount generally will be paid only if the employee has 25 or more years of service with the employer. Also, defined benefit pensions are often reduced for payments to Social Security. Under typical circumstances, the actual replacement ratio can drop to between 20% and 30% of the final average salary for a rank-and-file employee.
I’m too old to begin planning for retirement now.
Reality: Not true. Maybe you can’t make up for lost time and opportunity but it’s never too late to start saving. Someone who takes early retirement at age 55 may still be going strong after 30 years. So, while you’ll have to contribute more to your retirement savings account than if you had started earlier, you can still be ready for your retirement–if you start now, and do what needs to be done.
The equity in my home is my retirement fund.
Reality: While a house may be your largest investment, residential real estate does not always appreciate. Even when home prices do rise, they usually increase along with all other living expenses. Even if you sell and move to a smaller home, you may wind up with far less money, after paying capital gains taxes, than you expected. And, when all your savings have been depleted, you can’t sell your house, piece by piece, in order to eat.
My main goal should be to preserve my savings.
Reality: Inflation is a money-killer, and it will deplete your principal. To stay ahead of inflation, you shouldn’t seek to preserve money, but to build on it. A solid financial plan allows your assets to grow, so that you can keep up with the rising cost of living.
Marty A. Singer graduated from Arizona State University in 1977. After pursuing a career in education and contracts administration, she joined the established practice of Roger H. Morris, CLU, ChFC, of Santa Ana, California, which specializes in small business planning, retirement and estate planning. In working with business owners Marty seeks to build long term relationships with her clients, concentrating on delivering quality service. Community service and volunteerism is an important part of her life. She is a recent member of the Children’s Hospital of Orange County (CHOC) Padrinos, a fundraising group whose mission is to raise funds and awareness for the needs of children. Please contact Ms. Singer at 714-560-7825.