When it comes to retirement, many women just aren’t prepared. In many cases, the problem isn’t that these women don’t understand that preparing for retirement is important, but that they’ve fallen prey to one or more common retirement myths. These retirement myths—about how much you need to save, how long it will take and more—are making it difficult for some women to take the steps they need to prepare for life after they stop working. Don’t fall for these retirement myths.
Retirement Myth #1: Social Security will be enough for me to live on when I retire.
Social Security was designed as a safety net to help seniors avoid severe poverty. It was never intended to fund all of a person’s living expenses if they weren’t working. Workers who are currently retired receive an average monthly benefit of just over $1,200. Would that be enough to sustain you in retirement? For most of us, the answer is no. While you’ll likely be able to count on getting some of your retirement income from Social Security (the program faces some financial difficulties, but it’s unlikely to completely disappear any time soon), you’ll probably need other sources of income as well.
Retirement Myth #2: I still have plenty of time to save for retirement.
When it comes to setting aside funds for retirement, getting started early is key. If you’re young and just getting started in your career, it can be hard to prioritize saving for a distant retirement. Other financial concerns, such as paying off student loans, may seem like a bigger priority. As you get older, buying a house and having children may take center stage. But the longer you wait to get started, the less likely it is that you’ll be able to save the amount you need to comfortably retire. Setting aside even small amounts now could pay off in a big way in the future.
Let’s say you start investing $100 a month today in an account earning 6% annually. You continue to save the same amount each month for the next 30 years. In three decades, you’ll put aside $36,000 and your investment will earn roughly $62,000, leaving you with a total of nearly $98,000. That’s obviously not enough to fund an entire retirement. But this example does show the huge financial benefit you can see from setting aside even relatively small amounts of money. Now, assume you actually increase your contribution amount each year to keep up with inflation. If you increased your contribution level by 3% each year, then you’d have $141,000 at the end of 30 years. That’s a huge increase over 30 years from just one small change – further evidence that time matters.
Retirement Myth #3: I have more important things to save for, like my kids’ college education.
You have a lot of different priorities, and doing everything you can to see that your children have a secure future is certainly one of them. But you shouldn’t sacrifice your retirement security just so your children can graduate from a pricey college free of debt. Your kids can borrow money to pay for college and graduate school, but you can’t get a loan to pay for retirement. Worse, if you run out of money in your golden years, your children may end up supporting you, which is hardly the outcome you want. That doesn’t mean you can’t help your children pay for college if you can afford it, but you shouldn’t neglect your own retirement savings to do so.
Retirement Myth #4: I can’t afford to save.
Life is expensive. When your budget is tight, cutting contributions to your retirement accounts may seem like a smart move. But unless things are really dire, it’s probably a better idea to keep making contributions to your 401(k) or IRA. First, as explained above, setting aside money early gives it more time to grow. By stopping retirement contributions, you’re losing out on valuable time. Second, by not saving for retirement, you could be turning down free money. If your employer matches your retirement plan contributions up to a certain percentage, try to contribute at least that amount. Failing to do so is like turning down free cash.
Retirement Myth #5: I don’t work outside the home, so I don’t need to worry about retirement.
If you’re currently not in the paid workforce, retirement may not seem like something you need to worry about. But stay-at-home moms also need to think about what will happen when they get older. Some women may simply be counting on their husbands to handle all of the retirement planning, but that isn’t always a smart move. Even if you’re not actively contributing to retirement accounts, it’s still important to be involved in the retirement planning process.
In addition, if you previously worked outside the home, don’t forget about your old 401(k). Consider rolling over that account into an IRA, since that will probably give you more investment options and make it easier to make additional contributions. You can also look into strategies like a spousal IRA or, if you freelance or run a home-based business, an individual 401(k) or SEP IRA, to maximize your and your spouse’s retirement contributions.
Retirement Planning: Get Started Today
Planning for retirement is a lifelong process. By starting today, even if you’re just saving small amounts, you can increase your odds of enjoying a comfortable retirement in the future. Having trouble getting started? Consider making an appointment with a financial advisor. He or she can talk to you about your long-term goals and help you develop a retirement savings strategy that works for you. We’ve been doing this for years. If you think you need help, or if you simply have any questions, feel free to connect with us and schedule a free consultation.