There are some legitimate retirement rules of thumb that can provide at least some measure of security. For example, the 4 percent rule says you can safely spend 4 percent of your assets every year adjusted for inflation. And the 100 minus your age rule suggests the percentage of your savings you should keep in stocks. But there are also a lot of misconceptions and rumors about planning for retirement that could cause you to make investment mistakes. So, beware these retirement myths:
1. Social Security will pay your bills. Social Security alone probably won't be enough to provide a comfortable retirement. The average Social Security retirement benefit is $1,328 a month. Do you really think you can live on $15,936 per year? That's around the poverty line for a couple with no dependents. The maximum benefit for someone at full retirement age (currently 66) is $2,663, and even for those who wait until age 70 to retire, the maximum is $3,501 a month. That sounds better, but if you qualify for the maximum benefit, you were earning over $100,000 during much of your career, and you're probably not going to be happy living on $42,000 a year.
2. Inflation is low, so don't worry about it. The pundits have declared that inflation is dead, and now they worry about deflation -- an actual decline in the cost of living. It's true that last year the average Consumer Price Index inflated by only 1.6 percent. But remember the 1970s and 1980s, when inflation more typically came in at 5 percent? In one year, 1980, it went up over 13 percent. Even in the early 2000s, inflation chugged along at closer to 3 percent. So $100 from the year 2000 is today worth only about $72. If you retire at age 66 and expect to live another 20 years, $100 will then be worth only about $64, or maybe less.
3. The stock market will pump up your income. The stock market has been doing great since 2009, and produced a lot of wealth for retirees who have invested in stocks and mutual funds. But we all remember 2008 and 2001, when the stock market took terrible tumbles. The stock market is a good place to invest for the long term, but it can sting your finances pretty painfully in the short run. So stay invested with your long-term savings, but don't keep any money in the market that you might need in the next five years.
4. You can work if you need to. Several recent polls have found that baby boomers express an interest in working after they retire, usually as a consultant or in a part-time job. This may pan out for some people, especially those who are able to keep options open with their old company. But while many employed people say they want to work in retirement, a significantly smaller number of current retirees are actually working. Why the discrepancy? Jobs are not that easy to get for people over 65. And as we hit our 70s, we may find that we don't have the interest or stamina to continue in the labor force.
5. Maybe you'll receive an inheritance. The key word is maybe. But even the most affluent aging parents can be bled dry if they end up in a nursing home, especially if they don't have long-term care insurance. Nursing home care can cost thousands of dollars per month, and fees can go much higher depending on where you live and what kind of services are needed. But even without punishing care-giving costs, many elderly parents live well into their 90s and simply spend down much of what they saved for retirement.
None of this is meant to frighten you, but to forewarn you about latching on to a myth or rumor when making important retirement decisions. Retirement rules of thumb often need to be adjusted to fit your personal circumstances.
Tom Sightings blogs at Sightings at 60 .