How to Avoid Three Common Myths Standing in the Way of Retirement Security

A Retirement Strategy is the roadmap that shows us where to go, provides signposts along the way, and gets us back on track if we make a wrong turn.  With a Retirement Strategy in hand, you have a better chance of getting where and when you want to be – without it you may flounder, or even remain stuck in the same place you are today.

Today, most of us expect to live longer, healthier and more active lives.  How are you going to spend your time in retirement?  Will you visit family?  Travel?  Volunteer? 

The possibilities are endless but when you do decide, the next step is determining how your choices translate into dollars and cents.  So ask yourself: can you afford the lifestyle you envision?  Will you have dependents?  What will my other expenses be?

These are just a few of the questions that need answering, but following through still does not guarantee a dream come true.  There are 3 popular myths about retirement that you want to avoid falling prey to. 

Myth #1—Lower Expenses in Retirement

In the past, it’s been suggested that a good target for retirement income was 50% to 80% of pre-retirement after-tax income. However, your mortgage might not decrease, your healthcare and insurance costs may increase and with more free time you may tend to spend more money, depending on your situation.  In short, you can’t just assume your retirement income needs will decrease during retirement.  A good tactic is to base your planning on a range of scenarios.

Myth #2—My Social Security and Pension will be Enough

Traditionally, income at retirement has come from three sources —government programs, employer-sponsored plans, and private savings. However, today private savings is becoming an increasingly more important part of the equation.

Social Security was never designed as an alternative to personal responsibility. And, the higher your pre-retirement income, the less money you will receive from Social Security. When it comes to employer-sponsored pension plans, the trend in recent years has been for employers to offer tax-advantaged retirement savings plans to employees instead of employer funded pensions. One difference is that while a pension plan is guaranteed, a retirement savings plans (401(k) plans are the most popular) are subject to the ups and downs of the stock market. Another difference is that retirement savings plans today are often funded largely with the employee’s contributions.

If you fail to contribute or make poor investment choices, the benefits you receive from your retirement savings plans could turn out to be less than expected.

Myth #3—I Know How Long My Money’s Going to Last

Life expectancy is on the rise.  You may end up being retired longer than you were in the workforce and this can make a big difference in how much you have to save while still working.  Your life expectancy can make a big difference. For example, if you start with a retirement nest egg of $775,000 and earn 6% on your money, you can expect to receive about $75,000 per year for 15 years before your money runs out. If you live 20 years in retirement, you will need to start with $915,255 instead of just $775,000, to stay in the money for the duration of life.

After dispelling these myths, you may want to recalculate the estimate of what it’s going to take to finance the retirement lifestyle you envision. If you’re like many people, you may encounter a gap between what you need and what you can expect to have. Your choices are pretty straightforward:

·     Delay your retirement date.

·     Reduce your retirement income goal.

·     Increase your savings level.

·     Increase the return on your investment.

A well thought-out retirement strategy can be flexible enough to incorporate these changes.

A licensed financial professional can get you started and help you monitor your strategy over the years.

0202477-00001-00, Ed 6/17/2011, Exp 12/17/2012

Provided courtesy of Prudential. For more information, contact Michael Gottesman, a Financial Professional Associate with The Prudential Insurance Company of America's North Western Hills Agency agency located in Warren, New Jersey. He can be reached at michael.gottesman@prudential.com and (908)731-4028 or (973) 715-0986.