6 retirement myths that can derail your planning

Know how to separate fact from fiction when saving for this major goal.

1. Social Security will cover my retirement.

On average, Social Security makes up about 40% of needed retirement income.1 While that's a significant percentage, it leaves the majority of your retirement income to come from some combination of your retirement savings, any defined benefit plan you may receive or working. You can receive an estimate of your Social Security paymentsOpens in a new window through the Social Security website. Remember, your payments may be higher or lower depending on when you begin claiming the benefits.

2. I'll spend less in retirement than I do now.

You may in fact spend less in retirement depending on your lifestyle, but not all do. While you may no longer have expenses such as your commute to work, or your children may be out of the house, overall expenditures may rise if you move to a location where the cost of living is higher or you travel more often or become more active in a hobby. Healthcare costs also tend to increase as you get older. It's important to create a projected retirement budget and adjust it as your plans change.

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3. It's too late for me to start saving for retirement.

It can be easy to let retirement myths like this one unnecessarily discourage you. Even if you wish you'd started saving earlier, it's never too late to get started—and you may be able to save more to help you catch up. For 401(k), 403(b) and IRA accounts, individuals 50 and older may be able to contribute more than the traditional maximum amounts for these accounts. If your employer offers a traditional annuity as a choice within your workplace retirement plan, that may be able to provide you with lifetime income through either a fixed or variable option2. If you have a significant amount of cash on hand but it isn't invested in a retirement savings plan, you may want to consider a personal annuity, which can be purchased with a bulk payment to help provide lifetime income.

4. I can't afford to save for retirement now because I'm balancing other expenses.It's important to pay down high-interest debt and cover essential expenses, but even contributing a small amount now to retirement allows you to take advantage of potential compound growth in the future. If you have a workplace retirement plan, try to contribute at least the amount needed to take advantage of any employer match—falling short of that is like leaving money on the table. You can always pay off low-interest debts, like student loans or a home mortgage, later. Or you can take out a loan to help pay education costs for a child—but you don't want to run out of time to save for retirement.

5. I'm already contributing to a 401(k) or similar plan. Isn't that enough?

Anything you're already doing is a great start, but it may be worth considering having a diversity of assets that can be converted to retirement income in the future. If you may be in a higher tax bracket in retirement, for example, a Roth IRA3 gives you potential tax-free income, which can help reduce your tax exposure.

6. I need to be cautious with my retirement savings, because I can't afford to lose them.

Retirement myths can sometimes grow out of retirement facts. While it's true that at a certain point you will want to protect your retirement savings, if you still have many years until retirement, being too conservative now may limit the potential growth of your assets. This could leave you with less in retirement than you'd hoped for.

There are inherent risks in investing. Products may be subject to market and other risk factors and it is possible to lose money.

1 Social Security Benefits Planner, 2019

2 Annuity guarantees are subject to the claims-paying ability of the issuer. It is possible to lose money when investing in variable annuities. Traditional and personal annuities can be either immediate or deferred. Variable annuities can provide an income stream in retirement that is guaranteed to last for your lifetime or another period you may select, but the actual amount of income will rise or fall based on investment performance. Annuities are designed for retirement and other long-term goals. They offer several payment options, including lifetime income. Taxable withdrawals prior to age 59-1/2 may be subject to a 10% penalty in addition to ordinary income tax.

3 When converting a Traditional IRA to a Roth IRA, you may be subject to ordinary income taxes on the withdrawal from your Traditional IRA. If you earn over a certain amount, you may not be eligible to contribute to a Roth IRA. Withdrawals from a Roth IRA are typically tax-free if they are qualified withdrawals after age 59½.