Busting 7 Myths Regarding Retirement Finances
Retirement is unfamiliar territory to most. After years of working, you’ll need to learn how to manage your retirement finances in order to ensure that you’re comfortable for many years to come. However, many retirees believe these 7 common myths which could lead to disastrous consequences and financial hardships.
- Medicare Covers Everything
Whether you’re making use of state provided healthcare or private Medicare, many believe that they will therefore be covered for all possible medical needs. However, these services only cover certain procedures and services in full so it’s important to be aware of these limitations and budget for possible co-payments and deductibles.
- Taxes Are Inconsequential in Retirement
You won’t be paying taxes on your income on a monthly basis, which leads many to believe that taxes are almost non-existent in retirement. However, you should absolutely expect to pay at least some tax throughout the year. Speak to your financial advisor and get a clear picture of what will be expected of you.
- You Only Need 70% of Your Pre-Retirement Income
While your monthly expenses won’t include job-related costs such as an appropriate wardrobe and travelling expenses, these gaps can quickly become filled by other items. You’ll be in the best financial position if you’re able to match your pre-retirement income as closely as possible upon retirement. You’ll likely want to spend more money on a new hobby, dining out, or entertainment activities such as pokies online and these expenses will add up quickly.
- Downsizing Will Save Money
Most people sell their family home and move into a small home in the hopes that it will save money, but this isn’t always the case. For example, if you move out of the suburbs into a smaller home in the city, you may find your urban location to be more costly and you may regret the move when it comes time to entertain friends and family.
- $1 Million is Sufficient to Retire Comfortably
A $1 million retirement was for many years considered the standard to which to aspire to, but owing to longer life expectancies and increased costs of living, this will likely not be enough. If you’re used to frugal living, $1 million may well be enough, but if not it will likely be inadequate.
- Drawing 4% Annually is Viable
Many people don’t realise that they’re underfunded for retirement and drawing 4% of your retirement portfolio annually was once considered viable in order to ensure the sustainability of the funds. However, with increase life expectancies, it may be better to aim for 3% annually instead.
- It Will Be Cheaper to Reside at Home
Many retirees think that staying at home instead of moving to a retirement community will save money, but this isn’t necessarily the case. You may have to make alterations and renovations to your family home as your physical needs change and these modifications can be costly, completely wiping out any money you may have saved.