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Motley Fool: Stop Believing These 5 Retirement Myths

Motley Fool: Stop Believing These 5 Retirement Myths

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By    |   Tuesday, 02 August 2016 07:02 AM

When you are planning your retirement, resist the temptation to blindly believe these financial urban legends, Motley Fool cautions.

You will spend more since you have more free time in retirement

While common sense dictates that if you’re no longer working, you will be more likely to only splurge on yourself and shop online and at local malls, that simply doesn’t always have to be the case, the Fool reports.

“There is a growing body of literature exploring the spending habits and tendencies of retiree households,” Morningstar's David Blanchett wrote. “The majority of the studies note that consumption tends to decline at retirement. ... Overall ... the real change in annual spending through retirement is clearly negative “

If you’re not making a daily commute, you will save money on gasoline, car maintenance and will have more time to prepare food and eat at home.

You'll need about 80% of your former income to make ends meet

While it might be nice to meet the common urban legend that you'll need to replace 80% of your pre-retirement income in order to maintain your pre-retirement lifestyle, that isn’t always the case.

The math of your personal finances will change once you stop working. “Once you stop drawing a paycheck, Social Security payroll taxes go away, as do most Medicare taxes unless you have substantial investment income,” the Fool reports.

If you pay off your mortgage once you stop punching a timeclock, you won’t have to worry about the previous high living expenses. Any children should be grown and financially independent.

Medicare is free

There are plenty of costs that Medicare recipients still have to pay out of their own pockets. Your mileage will vary on such costs so it is best to meet with a professional financial advisor.

Social Security will be enough for you to live on

“It's important to have a solid grasp of just what you can expect from Social Security so that you can save, invest, and accumulate enough to make up for the shortfall between that check from Washington and your monthly expenses,” the Fool reports/

“Consider this: The average Social Security benefit was recently $1,348 per month, or about $16,000 per year. You may be expecting some pension income, significant dividend income, or a healthy inheritance that will cover the difference between what you'll need and what you'll get from Social Security. But if not, then you should be saving aggressively and investing appropriately in order to meet your needs.”

Social Security is soon going to vanish

“While some mistakenly think their benefit will cover all their financial needs, others exaggerate the financial danger that the program is in. It's true that, based on recent calculations, the federal trust fund that helps support Social Security will run out of money within the next 20 years. The latest estimates predict 2034 will be the year in which the trust fund is exhausted.”

Meanwhile, a recent new survey of retirement confidence confirms that many workers lack realistic plans for making ends meet in retirement. It also suggests there is a disconnect between Americans' confidence about retirement and their actual preparations to ensure a comfortable one.

The Retirement Confidence Survey published by the Employee Benefit Research Institute (EBRI) is the longest-running annual survey of retirement confidence among both workers and today’s retirees — this is the 26th annual edition. It provides a long view of how we are doing as a country in preparing for retirement, and this year’s survey does contain some encouraging news.

EBRI found that the percentage of workers who are confident about having enough money for a comfortable retirement has continued to recover from the record lows following the Great Recession, Reuters reported. Twenty-one percent are very confident this year, compared with 13 percent in 2013. Those who are somewhat confident rose to 42 percent, up from 38 percent in 2013.

So that means 63 percent of those surveyed have some degree of confidence. But here is the problem — many people are just guessing. Only 48 percent of workers say that they or their spouse have ever tried to calculate how much they will to have save to live comfortably in retirement.  
 
(Newsmax wire services contributed to this report).

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When you are planning your retirement, resist the temptation to blindly believe these financial urban legends, Motley Fool cautions.
motley fool, retirement, myths, urban legends
704
2016-02-02
Tuesday, 02 August 2016 07:02 AM
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