Retirement Planning Mistakes: 7 Myths That Can Harm Your Future

Managing your day-to-day responsibilities while building your savings for retirement can seem challenging at times. It can help to learn from people who have done it.

You can learn not only from other people’s successes but also their mistakes. Many retirement planning mistakes come from widespread myths and can be avoided.

Let’s look at some retirement-related myths and why they are false so you can avoid repeating others’ blunders.

Myth 1: Social Security Will Cover Me in Retirement

On average, Social Security benefits represent only about 30% of the income of people over age 65. The exact percentage varies depending on your total earnings and the age at which you start receiving benefits.

Even if you think that you’ll spend less in retirement than in your working years, that still leaves a hefty chunk of living expenses for you to cover—and perhaps little room to cover the unexpected.

Of course, you still want to maximize your benefits and that should start before you file. You can contact the SSA up to four months before starting benefits, but you can review your options much earlier. Socialsecurity.gov is a good resource, or you can call for an appointment at 1-800-772-1213.

How much income should you aim for? Everyone has a different idea of how they want to spend their retirement years. And while some expenses from your working years will go away, new ones may emerge. However, I find a good starting point for people is to target having 80% of their pre-retirement income to live comfortably in retirement. This amount is a total of all your income sources—including Social Security benefits, investments and personal savings.

Learn more about various sources for income in retirement.

Myth 2: Medicare Will Cover All of My Medical Care in Retirement

Most older adults use Medicare as their primary health insurance. Medicare Part A is typically free for retirees, but there’s a lot that the plan doesn’t cover. You’ll be responsible for deductibles, copays, doctor visits, bloodwork, X-rays, medical supplies, outpatient care, prescriptions, dental care, vision care, hearing aids and more.

You can get additional coverage through Medicare parts B and D, but you’ll need to pay for these optional plans.²

Additionally, long-term care—assisted living, nursing homes, in-home health aides, etc.—is a big expense for many older Americans. But it’s only partially covered by Medicare. It’s beneficial to review your savings regularly to see if you’re on track to cover retirement and long-term care expenses.

Myth 3: I Don’t Have to Start Saving Yet

Many Americans think they’ll work well into old age and have years and years to think about saving. But according to the 2024 Retirement Confidence Survey, half of retirees say they retired earlier than expected. While 2 in 5 retirees who retired early say they did so because they could afford to, nearly 7 in 10 retirees indicate the reason was out of their control. Reasons included:

• Loss of employment

• Disabilities

• Medical issues

• Need to care for family members

Even if you’re able to keep working for many decades, delaying saving means losing the greatest retirement planning asset you have: time. It puts the power of compound interest on your side, giving your investments the potential to grow over time. In other words, it may amplify the impact of the money you put into savings and provide a cushion against unexpected challenges.

Myth 4: I Need to Pay Off All of My Debt First

Paying down your debt is also an investment in your future as you can save yourself significant sums in future interest payments. And credit cards and loans may have interest rates much higher than what you might reasonably expect to earn by putting that money in the stock market.

Some financial professionals suggest comparing the interest rate on your debt with the rate of return you expect to earn on your investments. You might prioritize paying down higher interest rate debts while putting some money toward retirement savings. The sooner you start saving, the more you can enjoy the benefits of time and compound interest.

You also don’t want to overlook the opportunity to contribute to retirement accounts and employer plans. Many employers offer a contribution match that can accelerate your savings. Consider investing the minimum amount now to receive the match and increasing your contribution as you pay off debt.

Myth 5: I Don’t Need to Plan for a Long Retirement

There is a significant chance that you will live for many years beyond the average, according to the American Academy of Actuaries and Society of Actuaries.

If you live longer than you expected in your retirement planning, you may run out of retirement funds, known as longevity risk. On the other hand, if you overestimate how long you will live, you may find yourself unnecessarily missing out on having the lifestyle you really want.

The Actuaries Longevity Illustrator can help you see the likelihood of how long you might actually live. With this information, you may decide to change how much you save or how long you plan to work to reduce the odds of running out of money during your lifetime.

Myth 6: I Don’t Need to Worry About Inflation Right Now

Inflation may not seem like the biggest threat to your finances right now. After all, the Consumer Price Index has declined substantially from the 9.1% high it hit in June 2022, its highest point since November 1981.

But inflation is always a lurking risk, and it has a history of spiking unexpectedly.

Even a relatively low rate can erode your savings over time. Over the past 30 years, inflation has been about 2.4% per year, on average.* That amounts to costs approximately doubling during that time—an item that cost $1 twenty years ago would cost about $2 today.

You can’t control inflation, but you can take steps to help stay ahead of it by giving your money the potential to grow.

Myth 7: Investing for Retirement Is Too Hard

Inflation, interest rates, and Social Security and Medicare rules may seem like too much to deal with. But getting started is easier than you may think when you consider all the resources available to you. And many of them are free.

Attend a workshop sponsored by your employer or local community organization, grab a reputable book on retirement planning or learn investing basics online. There’s a wealth of information out there for new investors and for those who want to dive deeper.

Plus, there’s no rule that says you have to handle investments all on your own. You can invest in broadly diversified funds like American Century^® One Choice Portfolios^®.

You can also get in touch with a financial professional who can answer your questions, help you customize a plan and keep you on track to meet your goals. My colleagues and I will be happy to help with advice options for you. Request a call.

Fact: One of the Biggest Mistakes Is Not Trying

Preparing for retirement isn’t without obstacles. But by understanding common pitfalls and setting realistic expectations, you can move confidently through the process and save for a bright financial future.

It’s crucial to evaluate your current financial situation and set sensible goals. It’s also a good idea to look at your expenses periodically and identify areas where you can cut back and save more. This might involve making adjustments to your current lifestyle or finding ways to generate additional income to devote toward retirement.

Consider working with a financial advisor who can help you develop a plan based on your individual circumstances and objectives—and make the most of the time you have left before retiring.