Many myths are harmless, but believing the myths surrounding retirement can be financially devastating.
Some myths just won’t go away. Believing that poinsettias can be fatal if eaten may deprive you of some pretty red flowers, and believing in the Loch Ness Monster may prevent you from swimming in that crisp lake in the Scottish Highlands. But the myths surrounding retirement can be significantly more damaging. Let’s take a look at four common retirement myths and set the record straight.
Myth: If you save enough during your physician career, you won’t have to earn or save any money once you retire.
What is “enough” money for retirement? Chances are, you don’t really know, and the reason you don’t know is that you can’t be certain how long you’re going to live, what your health will be, or any number of other factors that determine your expenses while in retirement. Yes, you can estimate your life span and your financial needs. Yes, those are just estimates. Life throws its little curveballs, and you must be ready with contingency plans and the ability to adjust your own expectations.
Set retirement goals, for sure, and do your best to estimate what you’ll need. But also understand that many variables are at play, and just because you’ve retired doesn’t mean you’ve reached some magical realm where all your needs are cared for.
Myth: Most if not all of your expenses will go down when you retire.
This one’s a doozy. You’re planning to move to Florida or Texas to take advantage of lower housing costs, cheaper living, and perhaps less travel. Sounds great, but did you know that many states that don’t charge state income tax and many municipalities that have very low property taxes make up for that revenue shortfall through increased sales taxes, gasoline taxes, and taxes on “sin” habits such as tobacco and alcohol?
Your expenses may well be lower when you retire, but a period of inflation could mean that you will need more money to buy the same products. Also keep in mind that state tax policies and property taxes aren’t written in stone; they’re not only subject to change, they’re downright likely to change. During your expense forecasting, don’t be overly generous in the “savings” you think you’ll see from your current expenses. A good rule of thumb is to overestimate expenses wherever you can, so that you can put aside more now. Having extra is always preferable to not having enough, especially while you’re still in your active career.
Myth: Medicare will handle all your healthcare needs.
Simply put: It will not. Medicare, while it remains solvent, offers significant healthcare coverage for retirees, including a relatively new prescription drug benefit (Medicare Part D) that is pretty robust. But Medicare doesn’t cover all medications, and it doesn’t cover all forms of care. Long-term care is one major gap in Medicare coverage, but there are others. For example, depending on your plan, you will pay a deductible and some co-payments for an extended hospital stay. Look into supplemental coverage, private health care coverage, health savings accounts, and long-term care insurance.
Believing in any or all of these myths can be damaging, because they may prevent you from putting aside enough money or developing a contingency plan. The take-home message is not that all forecasting is fruitless, but that forecasting based on myths is like investing in a unicorn farm: Don’t do it.