We all know we should be saving for retirement, but from that baseline, myriad variables exist. How much in savings is enough? What role does Social Security play in your overall financial picture? At what age should you retire?
What you don’t know about building wealth and saving for retirement might surprise you. There are a lot of misconceptions floating around out there. Here are some common myths about retirement strategies and the reality behind them.
Myth: I’ll need 80 percent of my current income in retirement.
Reality: This figure varies from person to person based on spending habits, debt and other factors. Do you own your home outright or do you still have a mortgage? What do you want your lifestyle to be like? Hint: Estimate high. The more you can save for retirement the better your golden years will be.
Myth: Social Security will cover my expenses when I retire.
Reality: The amount of Social Security you’ll receive is based on your income, but it's nowhere near as much as your income. Earning $60,000 per year now? Expect $2,096 per month from Uncle Sam when you retire. Unless you're prepared to live on that, you need individual savings, too.
Myth: I’ll start getting Social Security at age 62.
Reality: You can, but you should delay. The amount you’ll receive each month if you retire at age 70 is 76 percent more than the amount you’ll receive if you start at age 62.
Myth: When I retire, I should take my money out of the stock market.
Reality: Stocks allow for potential growth while you are in retirement. Just make sure you have a diversified portfolio consisting of cash, fixed income and equities. Asset allocation and diversification won't ensure a profit or prevent a loss in a declining market, but the strategies can help mitigate risk and volatility.
Myth: I just entered the workforce. I don’t need to start saving now.
Reality: It pays off big to start early. People who start saving at 25 can accumulate twice the savings of someone starting at 35.
Myth: Beyond contributing to my 401(k), there's not much else I can do to save for retirement.
Reality: A savvy financial adviser can help you explore tax options like the saver's credit, which is worth between 10 and 50 percent of the amount you contribute to your 401(k).
Myth: My spouse has a solid 401(k) or IRA. We’re all set.
Reality: The two Ds can mess with this plan: death and divorce. Make sure your spouse names you, not your kids, as the primary beneficiary in case of his or her death. And divorce? If you don’t have your own savings, you could be out in the cold.
Myth: I’ll keep working during retirement.
Reality: Studies show 74 percent of people plan to work after retirement, and that's great, but there's no guarantee that income will keep coming in. Why? Health, family and employer concerns. That's why having a solid amount of savings in your 401(k) or IRA is crucial.
Myth: I should only contribute what the company will match in my 401(k).
Reality: Experts say you should be contributing up to 15 percent of your salary to your 401(k). Companies won’t usually match that much. Be smart and contribute the max. Your future self will thank you.
Myth: I’m 55 and haven’t saved much. Why bother? It’s too late for me.
Reality: Almost half of U.S. workers ages 45-55 have less than $10,000 saved. But it’s not too late! You can still enjoy retirement. You can add more to your Roth IRA or 401(k) the older you are. Pay off existing debt (except your home), and start investing 15 percent of your income now!
Working with a financial planner will ensure you have a solid foundation as you head into retirement. At Harbor West Wealth Management, we're here to help with integrated financial planning that helps you reach your financial goals.
This information is provided for general purposes and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however no warranty can be made as to its accuracy or completeness. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances.