6 Retirement MYTHS Debunked
We are experiencing a silver Tsunami. The leading edge of the Boomers turned 65 six years ago. On average, 1,250 Canadians turn 65 years old every single day. Most Boomers were born between 1961 -1965. That’s why you feel everyone has been turning 50. And people are living longer, much longer.
With all of this happening, it’s small wonder that the media, politicians and the financial services business are all talking about retirement. That kind of focus may be good, because of what it means for savings habits and pressures on goods and services. There are a lot of myths we have to be wary of if we want to ensure we have an adequate retirement income that lasts a lifetime.
WHAT YOU NEED TO KNOW
Myth #1 – Retirement planning is just for older people
The definition of retirement is changing and even though it may seem like a long way off, use that to your advantage. Much like dieting and exercising, starting a plan and sticking to said plan are the hard parts.
Your money seems to grow slowly at first then starts to balloon as you get older, even if you put in the same amount of money. Every year you delay means you’ll need to save more money and perhaps take on more investment risk in order to reach your goals.
Myth #2 – I’ll never be able to save enough for retirement
It’s surprising, even shocking, that with all of the attention devoted to an aging society and the need to save for retirement, that so few people are inspired to get started. Many do have a doom and gloom attitude about retirement. Myths aren’t helping matters.
Don’t fall into the trap of thinking it’ll be easier to save for retirement in just a few more years. After all, there are competing and expensive needs no matter how old you are.
The best time to start saving for retirement is when you are young and just starting to work. But if things just didn’t work out that way for you, then consider starting now. Let the power of compound interest work for you as long as possible.
Myth #3 – I need to retire rich like a Millionaire
The fact is that your “number” can vary greatly depending on your personal situation and goals, how long you expect to live, whether you will be single or with a spouse/partner and when you will retire. Consider trying some of the tools available from trusted sites produced by large financial institutions.
If you want to maintain the same lifestyle before and after retirement, your number is tied to how much income you will need to provide the same consumption dollars. That’s the money you normally spend on your own lifestyle. Add some extras to that bucket list of yours for those early years of retirement when you will be most active and spend more money.
Myth #4 – Never touch your capital
Conventional thinking and approaches often work on keeping your assets intact. That may work for the wealthy, whose investments generate plenty of cash flow so that they can preserve their capital for their children and grandchildren.
For the rest of us, it’s okay to spend your capital as a way of providing lifetime income. While saving may be a goal in itself during your working years, plan on an orderly spending of what you have saved during retirement. Isn’t that what you planned? It really is okay to spend your capital. That’s what it is there for.
The idea for many is to spend down in retirement. That’s why you save. Work with a retirement income planner on ensuring that you have enough capital to provide you with the cash flow you need no matter what happens; no matter how long you live. Look at alternatives to provide legacies for children and favourite causes while giving you the cash flow you’ll need.
Myth #5 – I can deal with a shortfall in retirement savings by working longer or taking up some part time work
Recent studies have found that almost half of retirees left the workforce earlier than planned. Downsizing, layoffs and negative working conditions were some of the reasons. People ages 55 plus have an average of more than 13 months on unemployment. That’s almost 5 months longer than younger people looking for jobs. (Source: Associated Press, AARP Public Policy Institute 2012)
The biggest reasons for leaving the workforce early were health related – either the worker’s or someone in the family. Working longer is not an option you can definitely count on because staying on the job or getting another job is not a given. Almost two thirds of retired Canadians had less than a year to plan and adjust for what could be 30-40 years of retirement. (Source: LIMRA Retirement Study, 2012; Retirement Myths and Realities Poll, 2013)
Myth #6 – You need 70 to 85 percent of your current income level in retirement
A growing number of analysts and researchers on retirement income and spending patterns have found that most people will be fine if they target 50% of their pre-retirement earnings. Statistics Canada has many years of supporting data on this.
You see, the focus should be on consumption dollars, what you spend on yourselves and your own lifestyle. For most Canadians, that excludes mortgages, child rearing costs and saving for retirement – things you wouldn’t necessarily be spending money on during retirement. You will need 100% of your consumption dollars and some extra money in the early, active years of retirement for those special trips and experiences you have dreamed about for years.
Your actual replacement income goal will depend on your marital status, whether you own a home, whether you have children and how much money you earn, so the range can go from 40 to 60 percent.
THE BOTTOM LINE
Be proactive when planning your retirement and remember: the earlier you start, the better! Healthy retirement planning will help ensure a more successful retirement. Contact Stacy & Alex to get started today!