Charlie Eissa is a financial expert who specializes in retirement money management. In the following article, Charlie Eissa breaks down the five biggest myths associated with retirement planning and provides insight into what retirees should really consider.
Americans’ golden years are quickly becoming tarnished.
As the typical retirement age creeps closer, it’s not the celebration it once was. Just 4% of U.S. retirees are free of debt, according to an analysis by the Employee Benefit Research Institute.
If that’s not worrisome enough, the same study found that just 4 out of 10 people were able to retire when they expected to.
That’s the same number of millennials who will likely have retirement income that’s not adequate to support their later years, says the Pension Research Council at the University of Pennsylvania’s Wharton School of Business.
Charlie Eissa explains that a big part of the issue is that very few people start to save early for retirement — if they save at all. The Insured Retirement Institute found that of those surveyed over 40 years old, 1 out of 4 has no savings at all.
So, what’s going on? To be fair, retirement is complicated. A retirement income and plan vary wildly depending on the occupation, specific needs after retiring (such as medical care), and whether 401(k)s or pensions are involved.
Retirement finances are also shaped by debt if there are still children to support and where a retiree lives.
Another issue: Misleading — or just plain wrong — information about retirement finances doled out online or through financial advisers. Charlie Eissa says that by identifying the myths and focusing on more solid advice, Americans can set themselves up for a comfortable retirement.
Myth No. 1: Expenses Will Be Much Lower
This has become a mantra that retirees seem to tell themselves if they’re worried about having enough in savings. The truth is, it’s almost always not true. Retirees always talk about downsizing or cutting back on expensive habits — and both of those are very difficult to do.
Sure, retiring means 401(k) contributions and payroll taxes vanish, but the chances are that medical care, travel, and other lifestyle choices will probably eat up the difference.
Instead: Charlie Eissa says to be conservative. Start saving early and write out a list every year of what you would like to do in retirement and how much it will cost in the long term.
Myth No. 2: Medicare Will Cover All Health Needs
There are a few companies that still offer medical benefits to retirees, but they are quickly becoming extinct. Just 13% of employers in the private sector offer that benefit, according to the Employee Benefit Research Institute.
Between 1988 and 2009, the percentage of employers with over 200 employees who offered health insurance to retirees dropped from 66% to 29% reports Charlie Eissa.
On top of that Medicare will likely cover less than 50% of medical bills for retirees. Oh, and by the way: Social Security will also not fully cover retirement needs. Usually, it only makes up around 40% of the desired retirement income.
Instead: Look into all health care insurance options, whether they are offered by an employer or not. Supplemental insurance or long-term care insurance may also be good options.
Myth No. 3: A $1 Million Nest Egg Means Easy Street
Charlie Eissa says that he’s not sure how the $1-million-is-all-you-need advice gained in popularity. Maybe someone just liked the idea of having a cool million to live off of. But that retirement goal is very outdated, financial experts agree.
People are living longer, and costs are high for real estate, food, travel, and transportation.
Instead: In general, Charlie Eissa and other industry experts say retirees need somewhere between 70% and 80% of their income before retirement to keep adequate standards of living.
Myth No. 4: “I Can Always Get a Job”
That’s a hard “maybe.” There’s no way to predict whether a retiree will be able to get a part-time, full-time, or side hustle if retired life becomes a financial burden. Health and mobility may be an issue.
The economy may be really bad, and people may be hesitant to hire someone older. According to the Retirement Confidence Survey, while 70% of retirees say they will work while in retirement, just 27% actually do.
Instead: Don’t hedge financial bets. Instead of having a job backup plan, consider saving more or investing wisely throughout one’s career.
Myth No. 5: Employees need to decide between an IRA and an Employer Retirement Plan
If an employer mentions that it’s required to choose between an IRA and a separate retirement plan, they have some serious explaining to do.
Instead: Many companies provide the open of investing in both types of retirement savings plans. And though, while it’s not advised, one can access money saved for retirement early with these plans.
