Can you spot a retirement myth when you see one? With so much information being thrown around out there, it can be hard to separate fact from fiction.
But if you’re going to build wealth and secure your retirement dreams, you need to make sure you’re not getting sidetracked by bad information or negative mindsets. You don’t have time for that!
I want to make sure these six myths don’t keep you from reaching your retirement dreams. So, buckle up your chinstrap, because I’m about to bust some serious myths!
Myth #1: I’ll Live Off Social Security Income
Whenever folks tell me that Social Security is their retirement plan, my eye starts twitching.
A recent poll found that almost half (44%) of adults ages 50 and older who are retired or plan to retire in the next few years say that Social Security will be their main source of retirement income. Here’s the problem: There’s a huge gap between what future retirees think they’re going to receive from Social Security and what they’re actually going to get.(1)
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Right now, retirees receive an average monthly income of $1,461 from Social Security.(2) That’s about $17,500 per year. Folks, that’s barely enough to keep the lights on and put food on the table, let alone actually enjoy a comfortable retirement!
And the news gets worse for those who aren’t retiring for a while because the latest projections show that Social Security benefits will be slashed by 20% in 2035 unless Congress takes action.(3) You know what I always say: Social Insecurity is more like it.
Do you really want the quality of your life to be dependent on how the Senate votes? I didn’t think so! If you want to travel, start that business, or pursue your dreams in retirement, this is your wake-up call. Social Security just isn’t going to cut it. It’s time to take matters into your own hands and start taking steps to secure your retirement future.
"If you want to travel, start that business or pursue your dreams in retirement, this is your wake-up call. Social Security just isn’t going to cut it."
That’s your job—not Washington’s.
Myth #2: If I Invest Up to My 401(k) Match, I’ll Have Enough to Retire
Now listen to me, if your company offers you a match on your 401(k), take that match! It’s a fantastic place to start investing. But stopping at the 401(k) match is like running a marathon and stopping a quarter of the way into the race. I hate to break it to you, but you don’t get a medal for stopping at mile seven!
If you want to build a solid nest egg for retirement, you need to invest 15% of your income into retirement. And that means you have to invest beyond the match. Here’s what I recommend:
If you have a traditional 401(k): Contribute up to your employer’s match in your 401(k), then work with a pro to invest the rest in a Roth IRA. If you max out your Roth IRA and still haven’t hit 15% of your income, go back to your 401(k).
If you have a Roth 401(k): You’re in luck! As long as you have good mutual fund investment options, you can invest your full 15% in your workplace account.
"Stopping at the 401(k) match is like running a marathon and stopping a quarter of the way into the race. If you want to build a solid nest egg for retirement, you need to invest 15% of your income into retirement."
You can do this! Ready! Set! Go!
Myth #3: I’ll Work Through Retirement
When it comes to Super Bowl commercials, some are funny and others are pretty weird, but they’re usually entertaining! However, one commercial popped up a couple of years ago that actually made me sad.
It was an ad for a financial services company that showed a bunch of retired folks working as firefighters, lifeguards and even night club DJs. Why? Because they had nothing saved for their later years. The commercial also featured a twist on the “Banana Boat Song” with the chorus changed to “I’m 85 and I wanna go home.”
The sad part is how close to reality that is.
Whether it’s crushing health care costs, higher-than-expected living expenses, or simply because they can’t afford to retire, 79% of workers say they plan to work during their retirement years. And yet, only 34% of retirees were actually able to do so in 2018.(4) Do you want to bet your future on those odds? Me neither.
"79% of workers say they plan to work during their retirement years. And yet, only 34% of retirees were actually able to do so in 2018."
Myth #4: Medicare Will Cover My Medical Expenses
I know there’s a lot of confusion about Medicare (the government-provided health insurance program for folks age 65 and older) and what it can and can’t do. So let me clear the air here.
Medicare can give you very affordable health insurance coverage for doctor visits, medication and hospitalization once you blow the candles out on your birthday cake when you turn 65. That’s the good news.
However, Medicare doesn’t cover the cost of deductibles, co-pays or any long-term care that lasts more than 100 days. Those costs are on you.
That last point is really important because the biggest health expense in retirement is long-term care. The median annual cost for care at an assisted living facility is $48,000, and a private room at a nursing home costs more than double that at $100,380.(5) On average, more than half of the people turning 65 today (52%) will need long-term care of some kind.(6)
When it’s all said and done, the average 65-year-old couple needs around $296,000 saved for health care expenses in retirement even when they have Medicare.(7)
And, just like good ol’ Social Security, the future of Medicare is also pretty murky if you’re not retiring in the next few years. That’s because Congress might have to raise the eligibility age, increase premiums, or reduce coverage in order to cut costs and the keep Medicare benefits going for future retirees.
That means that regardless of Medicare, you need a plan to cover all these health costs in your golden years! Here’s how to safeguard your retirement from medical expenses:
Step 1: Get long-term care insurance the day you turn 60. It’s not a fun birthday gift, but you’ll reap the rewards if you or your spouse ever need this service.
Step 2: Kick your retirement savings into high gear. The sooner you realize you can’t rely on Medicare, the more time you have to ramp up your savings.
Step 3: Do you have an insurance policy with a health savings account (HSA)? If you do, your HSA (I like to call it a “Health IRA”) could help you fill the gap and pay for medical expenses that Medicare can’t. Not only does the money you invest in an HSA grow tax-free, but you can also take out money in retirement to pay for medical expenses without paying any taxes on it. That’s a win-win!
Myth #5: It’s Too Late for Me to Save for Retirement
I hear this myth all the time. Here’s the truth: No matter how close you are to retiring, you still have time to grow your retirement savings.
Let’s say you turn 40 this year and bring home around $4,000 a month. By investing 15% of your income until you retire, you could end up with a nest egg worth $914,000.
Well, that’s great if you’re 40. But what if you’re 50? Contribute 25% of your income toward retirement until you’re 67, and you could have $592,000. Is that better than zero?
You bet it is!
I’ve talked to so many ordinary people who built extraordinary wealth for my new book, Everyday Millionaires, and virtually all of them believe they control their own destiny. They’re not waiting for the cavalry to swoop in and save the day. Instead, they choose to focus on the things they can control, set goals and work to reach them every single day. And you can do the same.
No matter how old you are or how much you’ve saved so far, you can still do something. Don’t waste another minute! The more time your money has to grow, the more compound growth can work in your favor.
Myth #6: I Can Do It on My Own
When it comes to investing, it can be tempting to fly solo. But there’s a reason why every flight you’ve ever been on has a pilot and a co-pilot in the cockpit. When you’re on your own and you don’t know what you’re doing, you might crash and burn or end up way off-course from where you want to be.
A recent research study conducted by Ramsey Solutions found that Americans who work with an investing professional are nearly twice as likely to say they’re very confident they’ll have enough money to retire, compared to those who invest on their own.(8)
"Americans who work with an investing professional are nearly twice as likely to say they’re very confident they’ll have enough money to retire, compared to those who invest on their own."
And it’s more than just confidence. We found that 68% of millionaires used an investment professional to achieve their high net worth.(9)
When you go it alone, emotions can get the best of you and cause you to jump in and out of the market when it goes up or down. But trying to time the market only costs you in the end. A pro can help you focus on the long term so you can ride out the waves and reach your retirement goals.
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About Chris Hogan
Chris Hogan is a #1 national best-selling author, dynamic speaker and financial expert. For more than a decade, Hogan has served at Ramsey Solutions, spreading a message of hope to audiences across the country as a financial coach and Ramsey Personality. Hogan challenges and equips people to take control of their money and reach their financial goals, using The Chris Hogan Show, his national TV appearances, and live events across the nation. His second book, Everyday Millionaires: How Ordinary People Built Extraordinary Wealth—And How You Can Too, is based on the largest study of net-worth millionaires ever conducted. You can follow Hogan on Twitter and Instagram at @ChrisHogan360 and online at chrishogan360.com or facebook.com/chrishogan360.