5 Common Myths About Retirement Savings
One of the most common reasons that people end up not having enough retirement savings when they get to retirement age is a general lack of knowledge about the topic. Even worse, many people get bad or misleading information early in life that prevents them from making good choices.
Despite the wealth of great information available online and from financial planners, there are a handful of myths about saving for retirement that seem to persist from generation to generation. Below are the most common myths, and the truth behind them, about retirements savings.
1) Social Security Will Be Gone Soon
Almost half the country is worried that Social Security won’t be available to them when they reach retirement age. Social Security is often the bedrock foundation of American retirement savings plans, and losing it would be disastrous.
Currently, the Social Security Administration projects that the trust fund for retirement benefits will be depleted by 2034. But, it also believes it will be able to pay roughly three-quarters of benefits through at least 2092, and that’s if lawmakers do nothing to change the system.
So, there’s both good and bad news there. The good news is that Americans will likely be able to count on getting some Social Security for a long time. The bad news is that it’s almost certainly not going to be enough for most to live on without some form of supplemental income or savings.
2) Having Debt Precludes Saving For Retirement
Many people are under the assumption that if they have a lot of debt, they can’t save for retirement. This isn’t true. There is a difference between prioritizing debt, and focusing on it exclusively.
Paying off debt and saving for retirement are not mutually exclusive, and an experienced financial planner can help anyone create a plan that works towards both goals at the same time.
3) It’s Too Early To Start Saving
There is simply no such thing as “too early to start saving” for retirement. The truth is actually the exact opposite – the sooner the better.
The reason for this is simple: compound interest. The sooner retirement savings is started, the longer in has to accrue interest and the more it will yield at retirement age.
4) It’s Too Late To Start Saving
This is another myth that just won’t die. Having some savings is always better than having no savings at all.
Even if you’re close to retiring, there is still a lot people can do, such as:
- Make catch-up contributions to your retirement account
- Take advantage of your employer’s 401(k) matching program
- Open both an IRA and Roth IRA account to contribute even more
Think of it this way: having some gas in tank is always preferable to having none and pushing a car down the road.
5) A 401(k) Will Save The Day
As we wrote about previously, many Americans are faced with the problem of an underfunded retirement savings account when they stop working.
Relying solely on a 401(k) means many retirees face running out of money during the years they’ll need it most. The best way to prevent this is to start saving as early as possible, take advantage of every opportunity to contribute to a retirement account, and plan for some form of post-retirement income to fill in any gaps.
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