If you’re like most people, you have an image of retirement that involves kicking back, relaxing and enjoying all of the hobbies that your busy schedule of work and taking care of the family have prevented you from doing; and if you’re like most people, you assume you’ll have enough money to do that. You might not have an exact idea of how much money you’ll need — or even where that cash will come from — but you’re sure it will be there.
Without careful planning early on and a thorough understanding of what you’ll need in order to retire comfortably, you might find that your golden years are a bit tarnished; in fact, there are several misconceptions about retirement — misconceptions that could keep you from living the life you want.
“Medicare Will Cover My Health Care.”
First, Medicare, as it stands today, only covers about half of the average person’s medical bills. When you turn 65 and qualify for Medicare, you’ll be covered for a portion of any hospital stays and regular doctor visits, as well as limited stays in nursing homes and rehab centers. The thing is, Medicare is not free (beneficiaries pay a monthly premium for the coverage, plus co-pays depending on the service) and it doesn’t cover everything. To get complete coverage, you’ll need to purchase additional supplemental insurance to pay for more expensive care, such as nursing homes and prescriptions.
“I Earned My Social Security Benefits — I Want Them Now!”
Technically, you’re eligible to begin collecting your social security benefits at age 62; however, when you do so, you decrease the amount by more than 25 percent of what you’d receive if you just wait a few more years and start collecting at full retirement age (currently 67). If you wait until you’re 70 years old, you’ll get even more social security. Unless you’re in dire straits, wait as long as you can before taking payments.
“I’m Going to Work Well Into My 60s — I Have Time to Save.”
Most people aren’t able to predict the future with absolute certainty. You might plan to work until you’re 70, and plan your retirement contributions accordingly, but what happens when you’re forced to retire at 56 due to illness or a job loss? Statistically speaking, those over age 50 have a more difficult time finding work than younger people. If you’re only saving a small amount with the hope of working longer, being out of work in your late 50s and 60s could be devastating. The solution? Contribute as much as you can with a target retirement date and the understanding that it’s not set in stone.
“I Won’t Need as Much Money in My Retirement.”
While this could be true — downsizing to a smaller home, for example, could reduce your housing and utility payments, as well as your taxes — again, it’s impossible to predict the future. Many experts recommend planning on needing 70-80 percent of your current income in retirement, but often that does not take into account inflation or individual spending habits; in fact, studies show many retirees spend more in the first years of retirement than they did while they were working. For that reason, save as much as possible and be realistic about your lifestyle expectations.
“I’ll Never Need a Nursing Home.”
You might think your family will take care of you in the event you become too ill to care for yourself, but in some cases, your family will not be equipped to give you the care you need. If you do need nursing care, it can cost upward of $70,000 per year — and unless you have long-term-care insurance, a nursing home will drain your savings and assets. An insurance policy will protect you and your family from that, and ensure you get the care you need when you’re older.
In many ways, planning for retirement is a guessing game — and if you guess incorrectly, your final years may not be as comfortable as you’d like. Take an honest look at your finances and your plan, and take steps to ensure you’ll be covered. You’ll enjoy those future golf games much more if you do.
About the Author: Candace Tardiff is a financial advisor and retirement planning expert who writes for several blogs. She recommends looking at sites like www.ltctree.com to learn more about planning for long-term care.