Retirement Planning Myths That Can Ruin Your Future

Most Americans are lousy at retirement planning. About 64% are estimated to retire broke! This is largely due to a lack of preparation and falling prey to retirement planning myths.

Even with so many people going into retirement unprepared, you don't have to follow the herd into financial ruin. Simply learning about the most common retirement planing myths, gets you one step closer to a better future.

Retirement truly can be relaxing and stress-free retirement if you get your finances in order. Just imagine the day you can hand in your security badge and start a permanent vacation.

The possibilities are truly endless if you're properly prepared for retirement.

Six Retirement Planning Myths

Now let's debunk the six most common retirement planning myths. Greater awareness can help you get better prepared for your future.

1) Myth: Social Security’s Got Your Back

If you’re a regular Financial Samurai reader, you already know that Social Security benefits are not going to give you a comfortable retirement.

If this is news to you, you're not alone. Many Americans just assume that Social Security checks will sufficiently replace their paychecks. Sadly, this isn't the case. Please bookmark and read through my retirement category to get better prepared. You’ll find a lot of eye-opening articles and helpful information.

Why is Social Security not going to cut it? The system is already underfunded by 25-30 percent and growing. The Social Security Administration openly admits this too.

The system is struggling and things are likely only going to get worse. The number of 65 and older Americans is expected to go from 49 million to almost 80 million by 2035. Without any convincing resolutions in sight and the likelihood of ever increasing full retirement age eligibility requirements and/or benefit reductions, you need a backup plan.

Plus, it’s highly unlikely the benefits you could receive will cover your entire cost of housing, food, transportation, utilities and healthcare unless you are an extreme minimalist. And keep in mind those are just basic expenses.

If you want to maintain or exceed your current lifestyle, the current average payout of $1,413 is too low. The chart below shows increases in full retirement age eligibility and benefit reductions for early withdrawal. Read: When To Take Social Security? Make So Much It Doesn’t Really Matter

Full Retirement Age Social Security

You cannot count on Social Security. The three-pronged retirement stool is You, You, and You!

2) Myth: 529 Contributions Are More Important Than Your Retirement Plan

As a parent, you want the best for your kids. Your instincts probably propel you to put their needs before your own on a regular basis. However, focusing solely on making contributions to their 529 college savings plan causes a big oversight with your own future.

Thinking you can worry about saving for your retirement later is a common mistake that can backfire. Remember, when you’re on an airplane you have to secure your own oxygen mask first if there’s a crash. You can’t save your kids or help anyone else if you’re passed out from smoke inhalation!

Still need convincing on funding your retirement plan first or in addition to your kids’ college savings plan? Well, your child may take it for granted once they find out you're paying for their entire college education.

They might skip classes, let their grades slide, continuously change their major, party too much, rack up credit card debt, and want to stay in school for as long as possible. If they have their own skin in the game, they’re more likely to focus on and appreciate the opportunities available to them.

Plus, if you delay retirement planning, you lose out on the huge benefits of compounding returns that really aid in growing wealth over time. If you are unable to grow your assets to a size suitable to fund your retirement you’ll have limited flexibility, financial stress and may have to work more years than desired.

Related: The Making Of 529 Plan Millionaires Because College Is Crazy Expensive

3) Myth: You Won’t Spend As Much In Retirement

A dangerous myth in retirement planning is the belief that one’s spending will go way down. While you shouldn’t have to save for retirement once you’re retired, you can’t forget about inflation and rising healthcare costs. It’s easy for living expenses to total 80 percent or more of what you were spending in your pre-retirement years.

Although the growth rate of healthcare costs has slowed and projections have been lowered, the trend is still up and to the right, i.e. costs are still expected to continue rising into the future.

healthcare cost over time

During retirement, you may spend less money on housing, but your expenses could easily shift into healthcare. Don’t forget about planning for potentially higher entertainment expenses too. After all, retirement gives you the free time to do all of the fun things you’ve been dreaming about.

Please be extremely careful of healthcare expenses. Healthcare related expenses is the #1 reasons for bankruptcy. Get good healthcare insurance folks. Further, if you have dependents, get good term life insurance. Check out PolicyGenius. They have the best platform that will find you appropriate quotes all in one place.

4) Myth: Your Kids Will Help If You Don’t Have Enough Money

This retirement planning myth can not only negatively impact you, but also your children.

Every parent wants his or her kids to succeed and do well in life. And hopefully you haven’t considered burdening them with your expenses in retirement, because that’s not good for anyone.

You may dream about them leaving the nest, spreading their wings, flying off on their own, and creating their own legacy they can share with you and the world. Hopefully that will happen, but it might not happen when you hope or anywhere near as well as you expect.

All too often, parents believe their adult children are doing well financially and could help out if their retirement income dries up. However, the stats tell a different story.

For example, the median net worth dropped from $105,800 in 1998 to $97,300 in 2016, yikes. Meanwhile, the current median household income is roughly $68,703 compared to $62,641 in 1999. In 2012, it was even as low as $56,912.

With these unpredictable fluctuations, you just really never know what your child's earnings will be like in the future.

median household income 2020

Don’t forget, there has been a rise in adult children living at home after graduation. Student loan debt continues to be a significant burden and the job market is more competitive than ever. Even though technology makes it easier to apply for jobs, it also makes it harder to get selected among the masses of applicants from all over the country.

It is more than likely your adult kids will rely on you to survive.

5) Myth: Leave The Principal And Live Off The Interest

If you’re hoping to accumulate a large nest egg, you may have thought about living off of the interest in retirement. If the nest egg is $1.5 million or more, this might be possible. But, for the majority of the population, this is just a pipe dream.

If you are part of the majority and do not have the retirement fund of a millionaire, do not worry. Part of the reason of having a nest egg is to actually use it. What good is it to save up all your life if you’re only going to spend a very small portion of that money once you're retired?

If you have $750,000 saved up and you withdraw $10,000 from the principal each year, this principal would, in theory, last for 75 years. At this rate, I would suspect that you would feel pretty good about having your principal last for the rest of your lifetime. Continue to beware though. There are always fluctuations in the market that can reduce your principal. If you plan to cut into your nest egg, do so sparingly and according to your careful plan.

See: Ranking The Best Passive Income Investments

6) Save Money By Downsizing Your House

The largest lifetime purchase for most Americans is their house. By the time you retire, your property will hopefully have appreciated in value. Some people plan on selling their house when they retire so they can downsize and live off the proceeds.

However, this is easier said than done and by the time you’re retired you may no longer want to move. Moving is a big pain after all and selling a property can be a long, stressful process.

Selling a house is emotional, especially when you’ve built a lifetime of memories in it. The stress of feeling forced to sell when you no longer want to can adversely affect health and happiness too. Don’t forget, there’s no guarantee that the housing market will be strong when you want to sell or that you will find an affordable and desirable replacement home.

See: How A Big Expensive House Can Ruin Your Life And Derail Your Path To Financial Freedom

Utilize Retirement Planning Tools To Achieve A Blissful Future

Life can throw unexpected twists and turns along the way, but proper retirement planning can help you withstand any curve ball. Be as realistic as possible with your desired lifestyle needs, savings goals, day to day expenses and unexpected emergency costs. Utilize retirement planning tools to help take the confusion and complexity out of the process as well.

Personal Capital has the best retirement calculator and planner on the market. It uses real data and Monte Carlo simulations to come up with the most realistic financial scenarios for your future. Other calculators simply ask you to guess input values to then come up with your financial future. The problem with this method is that we often underestimate how much we are saving and spending.

With Personal Capital’s retirement planner you can input different life events such as a wedding or home purchase in your cash flow statement and recalculate your financial future to see how you’ll do. Personal Capital has by far the best retirement calculator online.

Personal Capital Retirement Planner Tool
Sign Up For Personal Capital For Free

For further clarity and confidence into your financial life, simply sign up for Personal Capital, link all your accounts, and their Retirement Planner will use your real time account data to compute real outputs for your future. Everybody should give it a try.

So take full advantage of these retirement planning tools and make sure to not play into the hands of any of these myths. was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.