As we reported earlier this week, becoming a millionaire is not as impossible as it once seemed. But according to certified financial planner Katie Coleman, there is no set amount of money that will keep you comfortable in retirement.
Coleman, who is an advisor with Ameriprise Financial, told financial channel CNBC that she encounters six common retirement myths with her clients. Here they are:
1. The magic number: This myth says that all one needs is a nice savings that allows them to withdraw 4 percent each year. That “nest egg” will make for a comfortable retirement that will last a lifetime.
Coleman says the 4 percent rule doesn’t always work. “There is no magic number. Your retirement plan and withdrawal strategy should be as unique as you are,” she said. She suggests factors such as lifestyle, health and investment portfolio be factored in.
2. Your health care will be covered by Medicare when you retire: Medicare may not cover all of prescription drug expenses. It does cover doctors visits and hospital costs, but that won’t include long-term care.
Figures released by the Employee Benefit Research Institute (EBRI) indicate that a man should save $124,000 and a woman should plan for $140,000 in savings. That doesn’t include the cost of long-term care.
Using health savings accounts for medical expenses gives a triple tax advantage: 1, contributions are tax-deductible. 2, the contributions can be invested, tax-free. 3, withdraws aren’t taxed when used for qualified medical expenses.
3. Social Security benefits won’t be available to you: Social Security should be available in some form. Under current law, in 2034 there will still be 79 percent of the scheduled retirement benefits available to be paid, even if there’s no reform of the program. Working until age 70 should maximize your Social Security benefits.
4. You can work for as long as you want to: This strategy relies on working longer in order to save more for retirement.
This is a myth because even though people expect to work past age 65, less than 15 percent were able to, according to EBRI’s latest retirement confidence survey.
A better way to plan for unexpected retirement is to save as much as you can in your prime.
5. You won’t pay as much in retirement: “Retirees have volatile spending throughout their retirement, due to everything from negative shocks like car maintenance to dental work to positive shocks like helping grandchildren go to summer camp,” said Matt Fellowes, founder and CEO of startup United Income (UI).
UI’s research, which uses big-data analysis for financial planning, says spending may vary by 50 percent or more per year.
One also must account for taxes. “You may qualify for fewer tax breaks, such as mortgage and college savings deductions, in retirement,” Coleman reminds clients. Changes in tax laws should also factor in.
6. You’re living arrangements won’t change in retirement: Although most retirees prefer to stay in their homes according to AARP. Close to 90 percent of those surveyed say they want to age in place. But the costs of doing so can be too much. With housing being the greatest expense for people 55 and older,”Moving is often a major part of retirement,” Coleman said.
"BUILD THE WALL" bumper stickers now on sale. (BUY NOW)
If you would like to receive Breaking News text alerts on a smartphone or tablet, download the DML APP which is completely FREE and easy to use. Go to the Google Play Store or the IOS App Store and search for DML APP. Be sure to keep the app’s notifications setting on. Another way to receive alerts is to text to 40404 the following message: follow @realdennislynch (be sure to put a space between the word follow and the @ symbol).
To see more stories like this, sign up below for Dennis Michael Lynch’s email newsletter.
Sign up to get breaking news alerts from Dennis Michael Lynch.
Trump leaves NYC protesters high and dry