10 Retirement Myths and Misconceptions
The Odd-Job Myth
If you ask friends who plan to retire in the next few years about their expectations, some will reply, “There are enough jobs around the house to keep me busy for at least 10 years.” These well-meaning individuals, without knowing it, are using odd jobs as an excuse to avoid accepting a bigger challenge. They think about how satisfying it will be to catch up on all the little chores they have been avoiding. It usually takes only a few weeks to discover the truth. Having more time doesn’t make a job any more fun to do. In fact, some retirees hate them so much they return to work to earn enough money to pay the plumber, gardener, and painter. All probably wish they had done more serious pre-retirement planning.
The Stay-Busy Myth
Keeping busy is a great idea after retirement, provided you are doing what you want to do and your activities are meaningful and fulfilling. If you keep busy simply to be busy, you are falling for the myth. Some people think that if they stay busy enough, their retirement problems will go away and they will be happy ever after. Others stay busy doing meaningless chores to anesthetize themselves against thoughts of aging or living alone.
These individuals seem willing to trade a life of challenge and fulfillment for a passive existence composed of busy work. Instead of slowing down to design a rewarding retirement strategy, they spend time and energy on meaningless tasks. They visit the supermarket daily when once or twice a week would do. They accept social invitations knowing they will be bored. Worst of all, they stretch dull chores around the house. You get the feeling these retirees are avoiding retirement. Are they afraid to face a new, more mature identity? Has life been so disappointing that they dare not hope for anything better? Are they afraid to get off the treadmill and search for late-in-life happiness?
The Million Dollars Coverage Myth
A retirement portfolio of US 1,000,000 has long been the retirement standard, and why not? That’s a rich sum. But let’s get the bad news out of the way quickly. If you earn six figures and have no intention of living on an austerity budget when you stop working, you may need far more than $1 million to support yourself for the rest of your life.
The reason $1 million isn’t all it was once cracked up to be: As a rule of thumb, you should plan to withdraw no more than 4% of your retirement portfolio in your first year of retirement - otherwise you risk running out of retirement money too soon.
You can nudge up your withdrawals slightly each year for inflation. So if you want an annual income of $80,000 - the retirement inflow needed to maintain the lifestyle of a worker earning $100,000 - and you and your spouse will collect $20,000 or so a year in Social Security benefits, $60,000 will have to come from your own savings. At a 4% withdrawal rate, that works out to a nest egg of roughly $1.5 million in your retirement savings account.
Of course, that’s just a ballpark figure. With a pension or part-time work or more modest expectations, you can get by with much less than seven figures. The only number that really counts is the number you personally need to save based on your goals and resources. So start figuring.