Don't Be Scared of Retirement
I'm not saying you shouldn't live within your means and save for retirement. For that matter, you should probably exercise and eat your vegetables, too. But sometimes you have to stand back, gain some perspective and ignore all the anxious advice you get about retirement. Scaremongering often comes from people trying to push a political agenda or sell you a financial product. Here are five ways pundits and politicians try to scare retirees.
1. Social Security is going broke. Social Security is not going broke. The system has the resources to pay full benefits until the mid-2030s. That gives Congress two decades to make some adjustments, which is plenty of time, even for politicians. If nothing changes, Social Security will still be able to pay 75 percent of its obligations. Nobody wants to take a 25 percent pay cut, but that's not the same as going broke. Also, consider that when our parents took their first Social Security checks around 1980, the average monthly benefit for a retired worker was $321. Accounting for inflation, that $321 would be worth about $900 in today's dollars. But the Social Security Administration says the average benefit for today's retired worker is $1,333. That's a lot better than what our parents got.
2. You're not saving enough to retire. The Employee Benefit Research Institute, a Washington-based think tank, reports that a third of adult Americans have not saved anything for retirement. But that means two-thirds have saved at least something. Furthermore, the older people are, the more they've saved. Less than 5 percent of workers under age 35 have assets worth $250,000 or more, but about a quarter of workers age 45 and older own assets worth at least that much. The vast majority of Americans have built up a nest egg. They may not have enough for an affluent retirement, but it will be enough, along with Social Security, to keep them out of poverty and stave off starvation, especially if they're willing to move to an area with a lower cost of living.
3. Your medical bills will send you into bankruptcy. Fidelity has published reports saying the average 65-year-old couple will end up spending about $220,000 on health care. But that's an average, not a certainty. It's true that Medicare does not pay for all your medical expenses. That's why it's important to purchase a supplemental insurance plan, which typically costs a fraction of the cost of regular health insurance. It's also true that if you become incapacitated and are forced into a nursing home, the expense can be astronomical. That's why you should consider long-term care insurance, especially if you have assets you want to protect.
4. There's a war on seniors. Janet Yellen has allegedly declared war on seniors by keeping interest rates low. President Obama has supposedly declared war on seniors by raiding Medicare to pay for his health plan. And financier Stan Druckenmiller warned that the mushrooming costs of Social Security and Medicare will bankrupt the nation, and he joined the chorus calling for drastic cuts in these programs. But remember 2005? A re-elected President Bush proposed replacing part of Social Security with individual retirement accounts. His idea got nowhere. Of course, seniors should be watchful of politicians trying to target retirees for major cuts in benefits. But the idea that there is an organized war on seniors is the product of politics and paranoia.
5. Your expenses will increase after you retire. Maybe that's true if you have a bucket list that includes an extensive European vacation or shopping excursions to Rodeo Drive. But a retiree with a small earned income and some investment income is likely to pay lower taxes. You may even pay no tax on your Social Security benefit. Your housing costs could go down if your mortgage is paid off, and your local government probably offers a senior discount on real estate taxes. You could save even more by moving to a smaller, less expensive place. Presumably you will not be supporting your kids. Plus, you will no longer have to set aside 5 to 10 percent of your income to save for retirement.
There are plenty of reasons to plan ahead for retirement, from both financial and personal standpoints. But don't let the pundits scare you into thinking it's hopeless. You have a lot of resources, including your own brain power, that can help you make retirement the positive experience we all hope it will be.
Tom Sightings blogs at Sightings at 60.
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