Truth about retirement planning

Ruth to the Rescue debunks retirement planning myths

Published On: Dec 07 2012 06:16:42 PM EST
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Very few of us like to worry about our retirement plan, but that could be a huge mistake that could tarnish your golden years.

Adding to the problem are some common myths about financial planning that could interfere with a successful plan.

Recently, nbcnews.com assembled some myth-busting information to help you focus on a successful strategy for your retirement.

Myth No. 1: It's OK to postpone saving for retirement until other needs are taken care of.

That's a big mistake that can cost you years of savings. No matter what you do, there will be important expenses that will need to be paid, from college loans to weddings to home repair.

"The best time to start saving for retirement is when you were 22 years old," says Stuart Ritter, a certified financial planner with T. Rowe Price in Baltimore told nbcnews.com. "The second-best time is now."

Myth No. 2: Medicare will take care of almost all your health care needs.

The truth is Medicare covers about half of all health care costs for those enrolled in the program. That means you'll be on the hook for out-of-pocket costs for uncovered services such as long-term health care as well as dental, hearing and eye care, along with supplemental insurance costs.

According to a study of retiree health costs, A 65-year-old couple retiring this year is estimated to need about $240,000 to cover medical expenses throughout retirement.

Myth No. 3: You'll need far less income in retirement to maintain the same standard of living.

Surveys of retirees have found that many spend as much or more in the early years of retirement than before they retired.

Because retirement spending habits vary so widely, many financial advisers frown on the traditional rule of thumb that you need 70 to 80 percent of your pre-retirement income to maintain your lifestyle. If you reach retirement and find that was a bad guesstimate, "you may quickly find yourself looking for work," says Tim Steffen, director of financial planning for Baird Private Wealth Management in Milwaukee.

Myth No. 4: You can claim Social Security early and still get full benefits later.

Applying for benefits as soon as eligibility begins at age 62 will entitle you to monthly checks immediately. But when you claim early, your benefits will be 25 percent less than if you had waited until your full retirement age and 75 percent to 80 percent less than if you'd been able hold off until 70.

"This myth is not only so wrong but also dangerous," says Jean Setzfand, AARP vice president for financial security. "When consumers claim their Social Security benefits, they lock in those benefits for life."

Myth No. 5: You should rely heavily on bonds rather than stocks as you get older.

That common advice made sense when retirements were shorter and inflation didn't have as much time to erode savings. Planning for a 30-year retirement, as you should do now, changes the thinking. So does the fact that the outlook for Treasury bonds isn't as bright, with the government loaded with debt and future inflation fears high.

To figure out what percentage of your investments should be kept in stocks, advisers now recommend keeping 110 or 120 minus your age in stocks, updating the old guideline of 100 minus your age. And consider high-dividend stocks that can replace some of the income that is often sought from bonds.

Myth No. 6: You'll be able to make up a savings shortfall by retiring later or working part-time in retirement.

Forty percent of retirees surveyed by consulting firm McKinsey & Co. said they were forced to stop working earlier than they had planned, citing health reasons, having to care for a spouse or family member, or a layoff.

Here's a link to the entire article on nbcnews.com:.