Let’s be honest: nothing in life is a given (except for death and taxes, of course). Planning for retirement includes elements of art and science, and a qualified financial advisor can be a figurative goldmine when it comes to making the right decisions for your retirement plan. Here are some of the common misconceptions about retirement planning, as well as some advice to help you move forward in reaching your financial goals.
Misconception #1: You’re counting on a pension.
Pensions have been declining rapidly—estimates vary across industries and sectors, but more and more companies are freezing their current pension plans and have ceased enrolling new employees. GE was the latest employer to freeze its pension this week. Current retirees who have been receiving benefits are unaffected, but those who were counting on a steady check from the company in retirement need to prepare other options. Even worse are the circumstances of people who had counted on receiving a pension from companies that have since shuttered, not to mention public-sector workers in plans that are grossly underfunded and facing a crisis point.
The reality is, you may receive your planned pension check when you retire, but you need to be prepared for that check to be smaller than anticipated, or even non-existent. Look at the risks involved in the components of your retirement plan.
Misconception #2: You’re planning to fully retire when you retire.
It’s become incredibly common for workers to retire from one career and pick up a new role. Whether they work full time, part time, or independently, people of high and low socioeconomic status alike are still working for a paycheck after they officially retire. Whether the new employment arrangement is by choice or financial necessity, post-retirement careers can offer more flexibility than the individual had prior to retiring and add valuable years to contribute to your retirement plan.
Misconception #3: You’re counting on Social Security to pay your bills in retirement.
Depending on your age, Social Security can replace a portion of your income—emphasis on portion. Social Security was never intended to be a retiree’s sole source of income. You can create a free account at SSA.gov to see your earnings records to date, as well as your estimated benefit payment at various ages. How does your estimated benefit payment compare to your current cost of living? Although you can cut many expenses in retirement, for most people, Social Security benefits cover less than 50% of their costs. It’s worth noting that waiting until age 70 to draw social security will significantly increase your benefit, if it’s an option for you.
Now that we’ve covered three common misconceptions about retirement, let’s look at a couple of ways to improve your retirement planning.
Improvement #1: Contribute what you can, up to the allowable limits.
Allowable contribution limits increased almost across the board for retirement accounts in 2019. If you can contribute to your account up to those limits, that’s ideal—particularly if you’re over age 50 and eligible for catch-up contributions. If you’re eligible for an employer match, that’s even greater motivation to contribute as much as possible. Not taking full advantage of an employer match is turning down free cash for your retirement.
That said, we understand that contributing up to your full limit isn’t possible for everyone. The younger you are, the more time you have to save—and the more time your contributions have to grow. Even a small amount automatically deducted from your paycheck each month will make a difference. A financial advisor can help you determine how to work retirement savings into your budget, take advantage of tax credits based on your income, and choose the right type of plan for your situation. Contact us for a free consultation. The sooner you get started, the better.
Improvement #2: Don’t sacrifice your retirement for other financial goals.
There are all sorts of reasons people opt to pay the penalty to take early withdrawals from their retirement accounts. Ideally, you should avoid doing so if possible. Co-signing for your child or grandchild’s private student loans is another mistake that can seriously harm your retirement. Those co-signed loans aren’t forgivable in bankruptcy or even upon the death of the student. Creating a savings plan for your child or grandchild’s college education should never come at the expense of funding your retirement account. Student loans, though not always desirable, do exist to help pay for higher education. Remember, there is no financial aid for retirement.
Again, professional assistance can make a world of difference when making seemingly small decisions today that have a ripple effect for decades to come. We offer a free planning session that will point you in the right direction for the best possible retirement outcome. Give us a call today to learn more.