5 Retirement Myths Debunked

September 17, 2021

Debt-Free Retirement

Planning for retirement can be a daunting task. There is an abundance of information, articles, and tools available online to help you, but it can be challenging to evaluate your financial goals, prioritize your retirement needs, and create a sustainable retirement plan.

Unfortunately, many people base their retirement planning on one-size-fits-all checklists that claim to simplify the process. While this may work for some people, it doesn’t take your specific situation into consideration and can lead to mistakes with your planning. 

In this article, we are going to discuss the top five myths about retirement and give you the strategies to overcome them.

Myth #1: My Taxes Will Go Down in Retirement

Many people believe their taxes will go down in retirement because they are no longer working. While your earned income may go down in retirement, your taxable income may not. Some retirees will certainly pay fewer taxes, but many others will notice no decrease at all — and may even pay higher taxes than they did before retirement.

The primary reason for this is the required minimum distributions (RMDs) for your retirement accounts. If you save in a tax-deferred account like a 401(k) while working, you will be paying taxes on withdrawals during retirement. Once you turn age 72, you must begin taking your RMDs which will increase over time. As you get older, these required distributions can generate significant taxable income, causing you to pay higher taxes. 

In addition to your RMDs, you will likely have other income in retirement that is taxed, offsetting the fact that you no longer have earned income. This includes taxes on:

  • Pensions and Social Security
  • Retirement account distributions
  • Interest, dividends, and capital gains

If you have saved a large amount in tax-deferred accounts, you may want to convert some of them to a Roth IRA. The best time to do this is early in your retirement when your taxable income is low. This is a great way to pay fewer taxes now on some of your retirement savings.

Myth #2: My Living Expenses Will Go Down in Retirement

Financial planners will often tell you to plan for expenses in retirement that are 80% of your expenses while working. This may be the case if your retirement is 10 – 15 years away, but not so if you plan to retire in a few years. We advise that you plan on spending the same in retirement that you do while working. Some of your expenses will be reduced or go away, but other expenses will increase. 

Expenses related to your job like commuting will be replaced with travel expenses or eating out. You may want to do those home renovations you have been planning but never seemed to get to. And healthcare costs can increase as you get older due to more doctor visits, surgeries, treatments, and medication.

Simply enjoying your retirement can also incur unexpected expenses. With more free time on your hands, you’ll have more opportunities to spend money on hobbies, entertainment, shopping, and other activities.

It is easy to miscalculate how these expenses add up in retirement. Make sure to set lifestyle goals and plan for the things that will help you have a comfortable and fulfilling retirement.

Myth #3: Downsizing Will Help Me Save Money

Downsizing in Retirement

Many people plan to save money in retirement by downsizing from their large family home into a smaller one that requires less maintenance. While you may have less upkeep, downsizing your home does not necessarily save money. In some cases, it may even cost more to downsize.

Rising real estate prices and construction costs have made it difficult to sell your family home and buy a new, smaller home for less money. You may have less space and maintenance, but the cost of the new home is often the same or more than the home you are selling.

There are also costs associated with buying and selling a home, like realtor commissions, closing costs, transfer taxes, moving expenses, renovations, and new furniture. Taxes can also add to the cost of downsizing. Your new home may have higher property taxes, and if you move to another state, you may be paying higher income or sales taxes.

The most important thing to consider with downsizing is to include all the potential costs in your retirement plan to ensure you can afford your retirement dream home.

Myth #4: My Total Social Security Benefits Will Be the Same Regardless of When I Start Taking Them

Many people believe they will get the same total Social Security benefit throughout their life regardless of when they start taking it. This simply isn’t true. The total Social Security benefit you receive throughout your lifetime depends on when you start receiving the benefit and how long you live.

Your full retirement age for Social Security is the age at which you receive 100% of your monthly benefit. For most of us, this is between ages 66 and 67. You can take it as early as age 62 and receive a reduced benefit, or you can delay to age 70 and receive a higher benefit. 

Start Age Monthly Benefit Life Expectancy Total Lifetime Benefits1
62 $1,750 90 $588,000
67 $2,500 90 $690,000
70 $3,100 90 $744,000

1Does not include cost of living adjustments

In the example above, waiting until age 70 increases the total lifetime benefits by 26% over the reduced benefits started at age 62. Of course, it’s impossible to know how long you will live. Depending on your situation, delaying Social Security may be impractical and even risky. But if you’re in good health, holding off on taking your benefit may pay off.

Myth #5: It’s Okay to Have Debt in Retirement

Debt and Taxes

When you are younger and accumulating wealth, debt will most likely be a part of your financial life. In fact, some people believe it is a good idea to have mortgage debt in retirement because of the tax benefits. We believe that debt is like a ball and chain tied to your financial life, and you can’t really experience financial freedom while having debt.

That’s why it is ideal to be debt-free in retirement. If not, you will be using some of your retirement savings to pay your debt instead of using it to enjoy retirement. Set a goal to pay off your debts, including your mortgage, by the time you retire. By doing this, it will be easier for you to adapt to changing economic situations and enjoy a more secure retirement. 

Planning for Retirement with Trinity Wealth Management

Trinity Wealth Management can help you cut through all of the misinformation out there and create a retirement plan based on your specific needs and goals with clarity, honesty, and personal attention. Contact us to start planning today.

The commentary on this website reflects the personal opinions, viewpoints, and analyses of the Trinity Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Trinity Wealth Management, LLC or performance returns of any Trinity Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Trinity Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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