Invest Retirement

Five Retirement Myths Busted

Erin Wood  |  January 23, 2023

Retirement will be here before you know it. We bust five myths people have about planning for the years ahead.

As a paramedic, my husband has seen a lot. But this episode truly caught him off guard.

A new coworker, a nurse, asked a group assembled in the break room how much she should contribute to her 401(k) retirement plan. Because he’s heard it from me so many times, my husband quickly chimed in with a helpful, “At least 10%.”

The nurse scoffed: “I’m not giving anyone 10% of my hard-earned money.”

My husband was dumbfounded. He’s been saving for retirement since his 20s, first when he was a firefighter/paramedic and now in his second career as an ER paramedic. He couldn’t understand where his coworker’s misguided notion about the nature of 401(k)s came from.

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Me? I’m not surprised. Many people don’t have a solid financial education, or they don’t come from families that practiced saving and investing so they never learned these kinds of lessons. What’s more, as a society we’ve done a poor job of prioritizing the future. No wonder many people don’t know what they should do to save for retirement.

Let’s address some of the most common myths against saving now for retirement.

Myth #1: I’m Not Giving Away my Money

It might feel like once the money leaves your paycheck it’s locked away forever in a black box, never to be seen again. But that money belongs to you and no one else. The Labor Department oversees retirement savings and sets requirements for how companies must treat their employees’ 401(k) plans. The money in your 401(k) or 403(b) will always be yours, even if you change jobs. It is illegal for your company to do anything with that money other than set it aside for your use.

Myth #2: Retirement is Too Far Away

When you are first starting out, retirement probably seems like some faraway event in the distant future. Research shows that when we think about our future selves, it’s as if we’re thinking of strangers. We have a hard time believing the person we are at 35 will one day be a 65- or 85-year-old and don’t see how saving today will benefit ourselves years from now.

How do you short-circuit this tendency? It starts by getting to know the future you. Imagine what your life might look like in three decades. Imagine all your wrinkles and gray hair and what your priorities might be then. Writing a letter to your future self has been shown to help increase that sense of connection between present and future.

Myth #3: I Can’t Afford to Save For Retirement

Saving for retirement is a heavy lift. I get it. Even though I recommend squirreling away at least 10% (though 15% is better), I recognize that between a mortgage, day care, car payments and health insurance, retirement savings is a budget item that might seem too big. Try breaking it up into smaller, bite-sized pieces. Start by saving just 5% or 6%, or whatever amount will get your company’s full match. When you get raises and cost-of-living adjustments, move some of those increases into your retirement plan to boost you up to that 10% number over time. Because you’ve become used to living on a smaller paycheck, you won’t notice that some of your raise is going to retirement.

Bottom line: No amount of retirement savings is too little. Save whatever you can now.

Myth #4: The Market is Too Volatile

After more than a decade of a bull market, the 2022 stock market decline probably feels jarring. If you’re a young adult, you might not even remember a stock market that didn’t do anything but go up. I wish stocks would only move in one direction, but that’s just not how markets work. Periodic ups and downs are normal. Declines let the steam out when prices get too high and provide excellent opportunities to practice that old adage of “buy low, sell high.” Sounds great, right? When you’re in the throes of a bear market, it feels scary and makes you want to retreat. The last thing you want to do is invest. It’s human nature to want to avoid further pain. To help overcome these fears, I suggest focusing on the long-term. Since 1957, the S&P 500 has averaged a 10% gain each year. 

During that time, there have been 14 years of declines, with five years seeing double digit drops. If you don’t feel up to the task of figuring out which investment strategy is best for you, choose your plan’s target date option, an all-in-one investment that creates the best mix of stocks and bonds for someone with your retirement date. These funds put more money in stocks when you’re young and have more time to recover from downturns. Then, they move toward a more conservative allocation as you get older.

Myth #5: I’ll Live Off my Social Security

Since its passage in 1935, Social Security has offered an important financial lifeline for older Americans. It has prevented scores of retirees from living in poverty and provides an income floor for many more. But for higher income retirees, Social Security doesn’t go as far as you might think. In fact, Social Security replaces just 40% of the typical retiree’s pre-retirement income, and much less for higher income individuals.

Let’s say you and your spouse each made, on average, $100,000 annually for the last 35 years. Your retirement income goal is to replace 80% of your income, which means you’ll need a combined monthly income of about $13,000. The estimated Social Security benefit for each of you would be $2,893 ($5,786 combined), which means you and your spouse will need to replace an additional $7,214 a month to reach your goal. That’s where your own retirement savings comes in.

You should plan on using a large portion of your Social Security to pay for their health care expenses in retirement. According to a recent study, the average retired household will need about $21,400 at age 65 to pay for health care expenses and $36,600 a year at age 85. Plan to travel? Renovate your home? Contribute to your grandkids’ college education? You’ll need assets beyond Social Security to pay for that.

Making the case

Had my husband been armed with all this information, could he have persuaded his co-worker to adopt a different attitude about retirement saving? Who knows? Helping his colleague see why she should save as much as she can probably takes more than one brief encounter in the break room. But it starts with having the facts. Maybe the next time your co-worker asks you how much they should save for retirement, you’ll be able to dispel their misconceptions on the spot.


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