The pandemic has created uncertainty in employment and the labor market, but a new survey found that eight in 10 retirees are confident in their ability to live comfortably throughout retirement. According to the 2021 Retirement Confidence Survey, 72% of workers expressed confidence in their ability to retire comfortably, up three percentage points from last year.
“Even with changes in the labor market, workers’ confidence in their ability to live comfortably in retirement remains high overall,” said Craig Copeland, Employee Benefit Research Institute senior research associate and co-author of the report. “However, while resilience may be the watchword for 2021, three in 10 workers say the pandemic has negatively impacted their ability to save for retirement, due to reduced hours, income, or job changes. The group that was most likely to have their ability to save impacted were those that were more likely to have low confidence historically, such as low income, not married, and having a problem with debt.”
1. You Need to Be Debt-Free First
According to Howard Dvorkin, CPA and Debt.com chairman, one myth is that it’s important to eliminate all debt by the time you retire. But not all debt is bad debt.“If you have a fixed rate mortgage and are receiving a tax break through the mortgage interest deduction, there may be value in continuing to pay the mortgage down on a monthly basis, -at least in the beginning of retirement. What you definitely don’t want is high-interest debt like credit cards,” Dvorkin tells GOBankingRates.Act Now: It’s Not Too Late to Contribute to Your IRA in Advance of Tax Day
2. You Should Take Social Security Right Away
Another myth, Dvorkin says, is that people should start taking Social Security benefits as soon as they are eligible. “It’s actually closer to the opposite. You should wait until you need it or begin at age 70, because the amount you receive increases with the delay,” he says.“The maximum monthly benefit depends on the age you retire. For example, if you retire at age 62 your maximum benefit could be $1,923. If you retire at age 70 the maximum benefit would be about $3,300. You need to ask yourself – do you want up to $23,000 a year, or up to $40,000?,” Dvorkin adds.Learn More: Pension vs. 401(k) — Which Retirement Plan Is Best for You?
3. You Can "Set and Forget" Withdrawal Rates
In an article, Peter Kettle, Financial Advisor and Managing Partner at Iron Birch Advisors, says that another myth includes not needing to revisit withdrawal rates as planning a retirement income stream to last several decades can be challenging. Historically, Kettle says, a rule of thumb has been that a properly diversified portfolio could last 30 years with withdrawals of 4% or less and annual increases to match the rate of inflation.“However, continued low interest rates and elevated stock market valuations present challenges to that assumption in some situations,” according to Kettle.See: 10 Small Changes to Stay On Track With Your Retirement Goals
Find: Best Cities to Retire on a Budget of $1,500 a MonthHe adds that there are some approaches that might help, depending on your status. “If you’ve recently retired or are nearing retirement, regularly review withdrawal rates with your advisor. This is a smart way to keep an eye on how current stock prices and the rate of inflation may impact returns in your investment portfolio. The ability to adjust your retirement income level based on market conditions and your circumstances can help you address uncertainty or the unexpected.”If you’re young or mid-career, planning for a 3% to 4% withdrawal rate may be a reasonable approach over the long term, he adds.
4. You Can Always Work as Long as You Want
Another misconception is to think one can work as long as one needs to.The Financial Priorities study from Ameriprise revealed that 7% of respondents retired sooner than anticipated due to the pandemic. An additional 11% plan to retire sooner than expected, according to Kettle.Find: 20 Amazing Ways To Live Life to the Fullest When You Retire
5. You'll Spend Less in Retirement
Finally, another myth is to think you’ll spend less in retirement. While it may seem logical that your expenses could be lower after you retire, it could be inaccurate and problematic over the long term.“Overspending can occur. Added free time to socialize and pursue interests can lead to overspending. For example, it may be tempting to increase spending on expensive hobbies or take more trips. Consider developing a budget to help you cover essential needs first, and then create a budget for lifestyle spending. You can work with your financial advisor to adjust both as needed,” according to Kettle. He adds that another factor to keep in mind is inflation.See: Planning to Retire in 2021? Here’s What You Need to Know
Find: 10 Simple Ways Baby Boomers Can Catch Up on Retirement Savings“The Federal Reserve targets a 2% inflation rate each year, which adds up over time. In 2021, higher inflation is forecasted, but is expected to be temporary. To avoid a potential impact to your standard of living over time, consider what your monthly expenses could be in the future,” he says.More From GOBankingRatesMoney’s Most Influential: Where Do Americans Get Their Financial Advice?
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This article originally appeared on GOBankingRates.com: Experts Say These Are the 5 Retirement Myths You Need to Give Up Now