Yahoo Finance Here are the 3 big myths that cause so many Americans to miss out on juicy retirement income
Although many older Americans may see their spending decline to some degree once they retire, it’s still important to have adequate savings and income for a comfortable lifestyle. Unfortunately, many workers today lack confidence in their ability to financially prepare for retirement.
A survey commissioned by the National Institute on Retirement Security found that 55% of Americans worry they won't be financially secure in retirement. Additionally, a survey by Allianz Life found that 63% of Americans are more worried about running out of money in retirement than actually dying.
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Part of the reason some retirees wind up short may be due to pre-existing misconceptions. Here are some big myths that cause older Americans to lose out on retirement income needlessly.
1. It's best to claim Social Security early since the program is running out of money
There’s a reason many people believe that Social Security is on the verge of running out of money. The program’s trustees confirmed in a recent report that Social Security’s combined trust funds are expected to run dry by 2035, after which benefit cuts may arrive.
This very fear may inspire some Americans to file for Social Security at the earliest age of 62. But claiming Social Security at 62 in response to the program’s financial problems may in fact hinder your finances
Social Security is actually not in danger of running out of money completely. The program primarily gets its funding from taxes on wages, which will continue to be a viable source for many years to come. It’s projected that even after the trusts run out, 83% of benefits will continue to be paid, and this percentage is expected to marginally decrease over time.
Meanwhile, claiming Social Security before full retirement age (which hinges on year of birth and is 67 for those born in 1960 or later) results in an automatic benefits reduction. Someone filing at age 62 who’s not entitled to their complete benefit until full retirement age looking at about a 30% decrease.
So it’s best not to rush into Social Security due to fears about the program’s long-term viability. Not only is it not going away, but lawmakers may even be able to step in and prevent benefit cuts. And even if cuts do happen, reducing your own monthly benefit with an early filing isn’t going to do your retirement finances any good.
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2. It's wise to steer clear of stocks to avoid losses in your portfolio
Many people worry about investing their retirement savings in stocks. But while putting money into the stock market always carries risk, it’s still one of the best ways of generating wealth. Steering clear of stocks can carry the risk of a retirement income shortfall, which can be far more dangerous than temporary losses in an investment portfolio.
A monthly investment of $300 over 40 years could result in a retirement nest egg worth about $933,000 if that portfolio generates an annual 8% return, which is a bit less than the S&P 500 over that time, according to the Official Data Foundation. A conservative investment mix generating a 4% return during that time results in only $342,000.
Not only should stocks be a part of your retirement savings strategy, but you may want to consider holding some stocks during your golden years so your savings can continue to grow.
3. It's not necessary to fund a retirement plan until later in life
Paying off college loans. Saving for a home. Keeping up with a mortgage. These are the many factors that prevent workers from setting money aside toward retirement earlier in life. But waiting until your 40s, 50s or beyond to begin building a nest egg could lead to a lack of income down the line.
Returning to the above example, saving $300 a month over 30 years instead of 40 produces a nest egg worth about $408,000 when an annual 8% return is applied. Missing out on a decade of savings could result in a $525,000 income shortfall.
If it’s a struggle to fund a retirement plan earlier in life, look to the gig economy for extra income. And also, make sure to claim your 401(k) match in full, if offered by your employer.
Buying into bad information could lead to a retirement nest egg that falls short. Stay away from these dangerous myths in the course of your retirement planning so you’re able to approach your golden years with more certainty.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.