by Stephen High
As the saying goes, the worst lies are the ones we tell ourselves. It’s not that we intend to deceive ourselves. Sometimes, we can have an unhealthy perception of reality, especially when it comes to planning for retirement.
Perhaps it’s because planning for retirement involves risks, and risks entail uncertainty. Uncertainty often leads to fear. For example, in a survey conducted by the Employee Benefit Research Institute (ERBI) in January 2013, 36 percent of the surveyed workers 55 and older reported having less than $10,000 in savings and investments. According to the National Institute on Retirement Security, one-third of all people between the ages of 55 and 64 haven’t saved anything for retirement.
The ERBI survey found that 69 percent of the respondents said they plan to find paid employment once they retire from their primary job. Yet ERBI found that only 25 percent of surveyed retirees had ever worked for pay while in retirement. A similar study published in September 2006 by Pew Research Center found that only 12 percent of retirees are earning a salary.
Saving for retirement is one of our biggest financial challenges. According to EBRI, the percentage of workers currently saving for retirement has continued to decline to 57 percent from 65 percent as recorded in 2009. We tell ourselves it’s all right to wait, and we tend to think up excuses so that we can avoid facing the long, difficult task of saving for retirement. When we finally tell ourselves the truth, suddenly it becomes reality. That means we have to do something about it, and that is the scary part.
Here are a few of the lies that some people tell themselves that prevent them from reaching a comfortable retirement.
I can always save later, so why start now? Here’s some compelling math on saving $1 million by age 65. According to a 2012 article on retirement by Laura Shin, if you start contributing to a retirement plan at age 25, your savings would need to be around $6,500 a year (assuming a 6 percent growth rate). Shin found that if you don’t start contributing until age 45, “you’ll have to contribute $28,185 a year to get to your retirement goal of $1 million!” Can you afford to do that?
I can live on 70 to 80 percent of my pre-retirement income. Ask yourself: Will you be able to live the life that you want in retirement on 20 to 30 percent less income than you have right now? According to research published in 2006 by EBRI, 55 percent of surveyed retirees said they were living in retirement on 95 percent or more of their pre-retirement income. To prepare for your retirement, you should make a detailed projection of spending in retirement. Start with your current annual expenditures, subtract expenses that you will not likely incur in retirement and add expenditures that you will likely sustain, such as additional healthcare costs.
I won’t need long-term care. A study published last year in the health journal Inquiry by the Lewin Group, along with professors at PennStateUniversity and GeorgetownUniversity, projects that 65 percent of all people age 69 and older will at some point in the future spend some time in their homes requiring long-term care. Who will pay for that care? The authors estimate that about 45 percent of those expenses will be paid out of pocket. Don’t count on Medicare: It is not designed to cover long-term-care needs. One possible solution is to buy long-term-care insurance. In any event, you should factor in the need for long-term care to your retirement planning.
I can rely on Social Security. About one-third of households live on Social Security alone, according to the Center for Retirement Research at BostonCollege. The average monthly Social Security check, according to Social Security, is $1,269, or $15,228 a year. Retirees on Medicare have a minimum of $105 deducted from their benefits to pay for Medicare Part B, reducing Social Security take-home to $13,968 a year. For a two-person home, that is below poverty-level income.
It is not easy to plan for retirement. But if you can overcome the fears that prevent you from planning, you will be on a better path toward financial freedom.
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