Fitness Inspiration – Carlos R

Retirement Income Myths to Ignore

There are many misconceptions about retirement income that could derail your plans. Here are some common myths to ignore:

Myth: Social Security will cover most of my expenses

Reality: Social Security was never meant to be your primary source of retirement income. Even with the maximum benefit at retirement age, Social Security will likely replace just 40% of your pre-retirement income. You’ll need other sources of income to cover most of your expenses.

Myth: I can withdraw 4-5% of my savings annually in retirement

Reality: The “4% rule” is based on historical returns and doesn’t account for sequence of returns risk or longevity risk. A more conservative withdrawal rate of 3-3.5% is often recommended to reduce the chances your money runs out. Adjust your rate based on your individual situation.

Myth: I’ll be able to live off the returns from my investments

Reality: While investment returns can help fund your retirement, you’ll likely need to tap into your principal at some point. Even conservative investments may only provide returns of 3-5% annually, which is often less than the actual spending rate needed in retirement.

Myth: I can rely on pensions to cover most of my expenses

Reality: While pensions can provide a valuable source of income, they are becoming less common. Even for those with pensions, they typically replace just 40-60% of pre-retirement income. Other savings will still be needed.

Myth: I’ll be able to work part-time during retirement

Reality: Part-time work is not a reliable source of income in retirement. Many retirees struggle to find jobs due to age discrimination or health issues. Plan conservatively and don’t count on significant income from work.

Myth: I’ll be able to downsize to a smaller home

Reality: Downsizing can provide a valuable influx of cash, but it’s not a reliable income stream. Transaction costs, moving expenses, and the time it takes to sell a home make this a one-time boost, not a monthly paycheck.

Myth: I’ll be able to cut my spending significantly in retirement