In the course of your retirement planning, you may come across advice from well-meaning individuals hoping to lead you down the right path. But some of the advice you'll hear is not only out of touch with reality, but also downright dangerous. Here are some specific tidbits you'll absolutely want to ignore.
1. Social Security is dying, so you might as well claim benefits as early as possible
You may have heard that Social Security is rapidly running out of money and that the only way to get a piece of what the program owes you is to claim benefits as soon as you can. But that's far from the truth.
Social Security is indeed facing an income shortfall. Once its trust funds run dry, which may happen in a little over a decade, it may not have enough incoming revenue to keep up with scheduled benefits. If lawmakers don't come up with a fix to that problem, benefit cuts may be in store.
But that's a very big “if.” Lawmakers are invested in keeping Social Security benefits intact without cuts due to the sheer number of seniors who rely heavily on that income to pay the bills. So there's a strong chance benefit cuts will end up being avoidable.
Even if that doesn't happen, there's a big difference between Social Security reducing benefits and ceasing to pay them altogether. The latter scenario is just not on the table, so there's no need to rush to claim benefits in the hopes that it will spare you from getting nothing.
If you sign up for benefits ahead of your full retirement age, you'll slash them for life — and that could be on top of the reduction you face through universal cuts. That's a hit to your income that could prove catastrophic later in retirement, when your nest egg starts to dwindle.
2. You're safe to withdraw 4% of your savings every year
Ideally, you'll come into retirement with a healthy amount of money in an IRA or 401(k) plan. But you'll need to take withdrawals from savings strategically to avoid depleting your nest egg prematurely.
It used to be that financial advisors supported a 4% annual-withdrawal rate, but that advice isn't so great today. For one thing, bond yields are lower now than they were years ago, which means many retirees don't see enough growth in their portfolios to support a 4% annual-withdrawal rate. And also, Americans are living longer these days, so they'll need their savings to last longer.
While a 4% withdrawal rate may end up being appropriate for you, for many seniors, a 3% withdrawal rate will end up being a safer bet. But either way, you'll want to crunch some numbers and run through different models yourself rather than rely on age-old advice.
3. Expect your expenses to drop dramatically once you stop working
Seniors are often told that they'll magically spend a lot less once they stop working. In reality, your savings from not reporting to a job may be minimal.
Sure, you'll shed your commute and the expense that comes with it. But instead, you'll spend more time at home, which means you might pay more for utilities and entertainment.
Also, while you might manage to maintain decent health in retirement, you'll face your share of costs under Medicare, from annual premiums to hefty copays and deductibles. So there's a good chance you'll end up spending much more on healthcare as a retiree than you did when you were working.
Don't be misled
A lot of people are eager to dish out retirement advice. But it's important to differentiate between advice that's good versus dangerous. These so-called nuggets of wisdom are likely to lead you astray and cause you a world of financial distress, so don't make the mistake of buying into them in the course of your retirement planning.
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