The Great Myths of Retirement Planning

Retirement is a great time in life. People who have worked their whole life suddenly have the freedom to enjoy activities that they could not before. Spending time with children and grandchildren, exploring a new hobby and travel are the common goals of many retirees. In spite of the great opportunities, retirees need to be aware that some of the famous "adages" about retirement might be misguided or flat out wrong. I would like to offer potential retirement traps and solutions for those readers who will be heading into their leisure years.

» You won't need as much money during retirement. FALSE

The idea is that, by retiring, clothing expenses, dining and commuting costs would go down. This is probably true as it applies to work-related expenses, but retirees will travel to see the kids and grandkids. Medical expenses will be increased. Retirees still need to buy groceries and get around town. Although the actual activity may be decreased, inflation and reduced purchasing power may make everyday activities more expensive just because it costs more to live. The answer is to save much, much more than people currently are. Ten to 15 percent of a person's net income should be placed in some sort of savings investment — in other words, save for a rainy day.

» Children will take care of their parents in their old age. FALSE

Although children may want to provide care for their aging parents, at this stage in life the children are old themselves and don't have the physical ability to do the heavy lifting associated with caring for the elderly. In addition, children may have moved to a different part of the country or have ongoing responsibilities with their own children. Children of retirees are currently working and cannot afford time off from their jobs to handle the needs of aging parents. Although there may be very good intentions about caring for their parents, these intentions may not be able to be fulfilled. Everyone should expect to take care of themselves during retirement by owning long-term care insurance and sufficient investments to handle medical needs — in other words, plan to be self-sufficient.

» Social security and a company retirement will provide adequate income for retirement. FALSE

As retirees become a larger proportion of the population, government programs like social security and medicare may not be able to pay for the ongoing demand being placed upon them by an aging population. Even when added to an individual retirement program the demand on monetary resources may outstrip what was set aside. Baby boomers are currently entering their retirement with a unique situation developing. The workers coming up behind them are fewer in number than those that are retiring which means less people contributing to the system. Unless contributions by the employed are significantly increased, there will not be enough funds to cover the living expenses of the retirees. Future retirees need to make wise choices now in order to have a secure retirement — in other words, plan ahead.


Source: http://www.theadvertiser.com/article/20111104/BUSINESS/111040350/The-great-myths-retirement-planning