Everyone knows April begins with a day that celebrates pranks and practical jokes. But did you know that the last day of the month has been dubbed National Honesty Day?
In honor of yesterday’s holiday (which was invented in the early 1990s), we wanted to talk about four of the most common mistruths we often hear people tell themselves about retirement planning.
1. I’m never going to retire, so I don’t need to save for it.
According to a 2017 GoBanking.com survey, a significant percentage of Americans expect to work into their 70s, with 15 percent reporting they don’t plan on retiring until age 75 or older.
But plans and reality don’t always match up. The Institute for Social Research at the University of Michigan reports that today’s pre-retirees are in worse health (or face more health-related limitations on working) than prior generations were in their 50s.
Even if you plan on working forever, it’s possible that health issues will prevent that…which is why it’s so important to have a financial Plan B (in the form of retirement savings).
2. Social Security alone will be enough to live on when I retire.
The average monthly Social Security benefit payment in 2018 is about $1400—which totals around $16,800 per year, or less than two thousand dollars over the federal poverty level.
When you consider that a healthy 65-year old retiring this year will face between $133,000 and $147,000 in medical expenses alone for the duration of retirement, that monthly Social Security benefit seems more like a pittance.
3. I keep hearing how crazy the stock market has been lately; I should move all of my retirement savings into cash or bonds until things calm down.
It’s easy to be lulled into complacency and lose sight of the risks inherent to stocks now that we’re nine years into a bull market.
The first few months of 2018 have been the most volatile period in the U.S. stock market since January 2016. But stock-market corrections (or pullbacks of 10%) are actually rather common. They tend to happen about once every two years, and they generally last about two to three months.
Prior to January 2016, the market corrected in August 2015—the first time since 2011—and by November 2015, the market had recovered most of its losses.
Although volatility isn’t fun, it serves an important purpose: without it, stocks can become overpriced, leading to bubble-like conditions. Eventually, all bubbles burst…which generally leads to a market crash or a decline of 20% or more.
Trying to time the market with your retirement savings is an even riskier proposition. It’s easy to identify bull and bear markets in hindsight, but nearly impossible to predict them in advance.
The volatility that we’ve seen recently underscores the importance of diversification or spreading your retirement savings among several different types of investments to reduce your exposure to risk.
Start by creating an investment plan specific to your age, level of contribution and time horizon. Then revisit your plan at least annually and adjust if necessary.
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4. I have no retirement savings and I’m already in my early 50s…it’s too late for me to start saving now.
If you’re in your 50s and haven’t saved anything for retirement, you aren’t alone. According to the Insured Retirement Institute, 42% of Baby Boomers have no retirement savings at all. But it’s never too late to begin. Here are some tips to get started:
- Avoid using retirement-savings calculators: you already know you’re behind, and seeing an impossible savings goal may cause you further anxiety.
- Make some adjustments to your lifestyle, such as dining out less, cutting back on splurges and reducing unnecessary expenses, and redirect that money to your retirement account.
- Take advantage of the catch-up provisions in your IRA or employer-sponsored retirement plan, which allow investors age 50 and older to contribute more money than younger investors.
- Accept that you may have to spend a few more years in the workforce than you originally planned.
- Finally, consider consulting with an experienced financial professional: 79% of Boomers who have partnered with a financial professional have at least $100,000 in retirement savings, as compared to just 48% of those who have gone without professional advice.
Need some honest guidance? We can help you define your retirement goals and create a plan to achieve them. Request a no-cost, no-obligation conversation with one of our financial advisors today.