The retirement game has been upended compared to what it was when our parents and grandparents hung up their work boots. A lot of us haven't fully grasped the impact of that, says Rebekah Barsch, vice president of market strategy for Northwestern Mutual.
She busts these five retirement planning myths and says people who want to retire comfortably should pay attention.
Dad and grandpa died young and so will I. If you and your spouse survive to age 65, there's a 50 percent chance you'll live to nearly 90 and a 10 percent chance that one of you will live to 100, Barsch says, relying on statistics from Social Security.
I can retire comfortably on 80 percent of my income from my final working years. If you have only 80 percent of your pre-retirement income, you'll probably be scrimping, Barsch says. While 80 percent may seem like enough -- especially if you've paid off your home -- medical expenses, recreational costs, support for grown children and grandchildren, and taxes are all likely to cost more than they were when you were working.
Medicare minimizes health care costs. In fact, if you had good employer-sponsored health care before you retired, you'll probably pay more for Medicare. Barsch points out that the Center for Retirement Research at Boston College estimates that out-of-pocket medical care is running $4,300 a year for a retired individual and twice that for a retired couple.
Sticking with the 4 percent rule will ensure your money will last forever. The research based on that rule, which says that you can initially withdraw 4 percent from your savings, increase that amount by inflation annually and your savings will last indefinitely, is based on 30-year-old calculations that don't add up any longer, Barsch says. She points to recent research from investment research firm Morningstar.com that says that theory didn't always hold water even back then. For instance, if you retired with $500,000 in 1970 and followed that rule, you would have been broke by 1992.
I'll work in retirement. Two-thirds of pre-retirees say they are going to keep working in retirement, but only one-third of retirees have jobs, Barsch says, pointing to Department of Labor statistics and retirement research from LIMRA, which found that half of people who retire before they intended do so because they lost their jobs.