The Myths of Retirement

849249352Having turned 65 last year, I am being asked about retirement more frequently. On a personal basis it’s not on my radar, though I am may be in the minority of those my age. My lack of desire for retirement is not driven by finances but rather by the desire for continued engagement. I started my consulting business 19 years ago, so my business, lifestyle and life in general are all intertwined and the balance is good, for me. I like going to the occasional mid-week “consultant’s specials” (a/k/a day games) in the Bronx. But I also like working with clients the majority of other days. I am self-aware enough to understand that things change over time, so I reserve the right to change my mind.

But for those who work for a “company”, retirement replaces employment. Alas too often retirement is “encouraged” or forced depending on the company. For those facing retirement, beyond the lack of income, which may or may not be an issue, the issue for post work life is “what am I going to do?”. “I am going to golf every day”, say some. No probably you won’t (I surely won’t since I don’t like golf). The issue is how will you fill your time in a meaningful/enjoyable way? So as one considers retirement there are several myths worth shattering:

1. “I will live on social security”

Alas, no you won’t. The average recipient gets $1400/month or roughly $17,000 per year. Can you live on that? Even for those who max out , which is $2687/month–$32,000 annually at Full Retirement Age (66), or max out and wait until 70, which very few do, it’s still roughly $3500/month, or $42,000. Social security is a wonderful part of a retirement plan but for most people it is insufficient to cover post-retirement expenses

2. “Medicare will cover all my health care costs for free”

Wrong on several fronts:

a)      Medicare is not free—and the more post retirement income you have, the higher the income related adjustment you pay. And wise folk choose a supplemental policy to cover costs not covered by Medicare

b)     Many things are not covered—hearing aids, dentists, and more

c)      In home care is not covered (though that may change in the future)

d)     Assisted living is definitely not covered

3. “My taxes will go down”

Perhaps, but not true for many. For those who have been (wisely) contributing to IRAs/401ks, Required Minimum Distributions (RMDs) are straight ahead. You are required to withdraw specific amounts of your accounts and pay taxes on those withdrawals as ordinary income, unless they are Roth accounts. And there are really BIG penalties for missing these distributions. And by the way, 85% of your social security is taxable too over a low threshold of income. Therefore, your taxes may not go down. You need to do the math, specifically in your case, and factor in the new tax laws too when you are doing so.

4. “I won’t outlive my money”

Depending on one’s health, this may not be the case. Years ago, a 65-year-old retiree might live another 5-10 years. Today the average 65-year-old will live another 20 years, and many far longer

5. “So, if I am old and have to go into a nursing home, the government will pay for this”

Not true. See #2—Medicare will not pay for this. For those who think that they can pass off their assets to their family and then use Medicaid to cover the costs, not so fast bucko. When you apply for Medicaid, any gifts or transfers of assets made within five years (60 months) of the date of application are subject to penalties.

6. “If I need money, I will go back to work”

Not a bad strategy if one wants to or needs to, but realistic expectations of your skills, earning power and ability to work need to be considered. Most people are poor self-evaluators of their own skills and earning power, and view themselves through the prism of their younger successful achievements.

7. “I have plenty of money”

Good for you if you do. A credit to your earlier planning. But do the math anyhow. Assume inflation, increased health care costs, discretionary expenses, gifts, etc. and longer than average life. When will the money run out? 80, 85? Sorry you don’t have enough money. If you truly have enough until 95+ then you are probably OK. And do you hope to leave some $ to others when you pass? How much? Factor that in too. In the end, “rules of thumb” are nice for general articles, but irrelevant to specific plans. Make conservative assumptions and project realistic and specific expenses to really determine your cash flow. And please, don’t assume big stock market growth, be more conservative in your assumptions and investments as you age. We all know what happens when you Ass-U-Me

Living a long, meaningful and healthy post retirement life is something we all aspire to. It requires planning and a full understanding of expenses and a future plan. It can be done. I wish for all long, healthy lives, but beware of “out-kicking your coverage”.

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