When it comes to retirement savings, most mishaps occur when individuals’ outlooks lean too heavily into one of two extremes: overly complacent (overconfidence) and the overly pessimistic (overanxiety).
Recognizing which category you’re more likely to fall into and learning the truth about your assumptions can reduce stress, position you well for the future, and offer you a more positive outlook. Gathering financial information and comparing costs as well as using a retirement savings calculator can help you to avoid both pitfalls.
There are three traditional primary sources of retirement income in the US:
- Employer-provided retirement savings accounts and pensions,
- Social Security benefits, and
- Personal assets or savings.
Discounting or over-relying on any one of these three “pillars” of retirement savings can cause major planning errors. Here are some of the most common personal finance myths you’ll need to correct in preparing for retirement.
Financial Myths of Overconfidence
Debunk these myths if you tend to over rely on traditional savings programs and government assistance.
Myth: Medicare will cover my medical expenses if I need long-term care.
Fact: It won’t cover all of them, leaving some expensive gaps.
Although it does help eligible seniors 65 and older pay for some medical expenses, there are some major healthcare needs Medicaid typically doesn’t cover, including:
- Long-term care (which you may need if you develop a chronic disease, physical impairment, or memory loss disorder)
- Dental care
- Vision assessments
- Copays
- Deductibles
This means you’ll need to have a plan for fielding these retirement expenses in the future, even if you don’t currently need all of the medical services associated with them.
Myth: Maxing out my 401(k) contributions will pay for retirement.
Fact: Retirement savings accounts support retirement, but don’t fully fund it.
There’s a good reason 401(k)s exist: they keep your income taxes lower while you’re working, and they help to build substantial savings for your retirement afterward. However, there are limits to how much you can save through this and similar kinds of retirement accounts.
The good news is that the caps on savings allowances have recently increased. As of 2023, individual employee contributions for 401(k)s, 403(b)s, most 457 plans, and the federal Thrift Savings Plan have been raised to a maximum of $30,000 per year for people aged 50 and older and $22,500 for people under 50.
The bad news is that at the current cost of living, it’s pretty difficult to live on these amounts alone, which can only be partially supplemented by funds like social security benefits. As a result, it’s wise to boost your retirement savings through additional means.
Financial Myths of Overanxiety
Put these myths to rest if you think it’s impossible to save enough money for retirement.
Myth: Social Security is dwindling too quickly to be useful.
Fact: Social Security will continue to be a significant source of retirement income.
It’s true that the US Social Security program often a topic for reforms, and it represents only one of the three “pillars” of retirement savings. However, because these benefits increase at a greater rate than inflation does, the monthly checks you receive will actually be higher in the future than they are currently. In addition, the Social Security program generally enjoys bipartisan political support, and the 2019 SECURE Act offers some new protections for retirees.
Myth: It’s too late to start saving for retirement.
Fact: It’s never too late to set up retirement savings.
Although it’s true that it’s best to start saving for retirement as early in life as possible, there’s no need to despair if you’ve started late. There are many ways to pay for retirement. In addition to the traditional three savings “pillars,” you can generate additional funding through:
- Downsizing your primary home or selling it entirely in favor of moving to a maintenance-free senior living community.
- Investments (which, given that people are now living longer, don’t necessarily have to be as conservative as experts previously thought; consider diversifying your portfolio with the guidance of a licensed financial advisor)
- Roth IRAs
- Tax-advantaged products
Another great way to make retirement more affordable is to move into a nonprofit continuing care retirement community (CCRC), also known as a Life Plan Community. These organizations offer options for independent living and a vibrant social life as well as personal and medical care support if you need them. Because nonprofit CCRCs put the well-being of their residents first, you can be confident about getting the best quality of life for your hard-earned (and well-saved!) money.
Debunking One Last Myth
Myth: Saving for retirement is something I need to figure out on my own.
Fact: Professional financial planners and even friends or family can help.
Many people have walked this road (or are currently on the journey with you) and would appreciate the opportunity to talk about your plans for the future. Many of your trusted friends or family would be honored to help you to fine-tune your goals and vision for your retirement years.
After all, your financial plan for retirement should be as unique as you and reflect your specific goals and circumstances. There’s no one easy solution or a fool-proof plan that guarantees success when it comes to finances. Always seek the advice of a trusted financial planner before acting on anyone else’s advice. Financial planners can help you to examine your options, project for the future, and understand which advice you should take and which suggestions to avoid to set your retirement savings on the right path.
Get On Track for Retirement With Chapel Pointe
Chapel Pointe is a faith-based continuing care retirement community committed to serving and enhancing the quality of life for people aged 62+ in Central Pennsylvania. We’re honored that our greater community sees the servant-heart of our nonprofit organization and consistently selects Chapel Pointe as “The Best of Cumberland County.”
Contact us to learn more about our exciting options for independent living and general information about pricing and financing.
Since the beginning, our team's mission has been to ensure that every resident is treated with love and respect. Experiencing our core values—trust, integrity, faith, service, and innovation—lived out every day at Chapel Pointe reassures seniors that they are making the right decision by welcoming us into their lives.