This “6 Simple Truths About Retirement ” describes some of the misconceptions when people retire or that people need to be aware of before retiring. Thanks to Rosland Capital for providing the infographics for this post. This post contains affiliate links/ads. See disclosure policy.
Many people retire early or late and for different reasons. Some retire because they have already made sufficient amount of money to last them during their retirement. Some retire because of disability. The truth is, there are a ton of reasons that people retire early or late in life.
Personally, my wife and I like to retire early so we can travel the world and be with our family and friends more often. We also want to retire early because I won’t find the need to worry about the 9-5 job I have. Don’t get me wrong, I love my job but I don’t intend on working for forever.
Planning for retirement is no easy task. If it were, then, a lot of people would be retired by now. It doesn’t mean that you shouldn’t figure out what you need to do in order to retire comfortably. Planning may be hard but I believe that it’s doable and it’s all worth it.
Retirement planning can be confusing. Oh yes, there are times that I get confused with retirement planning, options, and strategies that I just stop and step back and wait a couple of days later to get back on track. I have been planning my wife and my retirement for a couple of years now. Even though we are still young, we still think that there’s no better time to plan than now.
As I go through this planning, I realized that there are simple truths about retirement (planning), something that may or may not be obvious to a lot of people.
Simple Truths About Retirement
Here are the simple truths about retirement.
1. No magic number
I hear a lot of people saying that they need a million dollars or somewhere around that ballpark to live comfortably during retirement. For me, there really isn’t a magic number. There are numerous factors that can play into how much you need during retirement.
You don’t know if you are going to be healthy by the time you retire. You don’t know what repairs and maintenance you need to do in your house in due time. You may not know exactly where you are going to retire and so, the cost of living may be different than what you anticipate or will anticipate.
This doesn’t mean that you should stop saving. That’s a big no no. A plan or a step towards retirement, even a small one, can or will make a big impact later on. Just because you don’t know how much you need does it mean that you need to stop saving.
Tip: Save and invest as much as you can. In general, you are better off having more money in retirement. I’m not saying that you should save and invest tremendously that you forget to have a good and happy life today. That’s not what I mean. Remember balance is key, that is, balance among saving, investing, and having fun.
2. People return to workforce
Believe it or not, some people go back to workforce after retirement. The reasons may be good or not. Some go back to working because they have already consumed their retirement money and need to pay their bills. Yes, bills don’t retire just because you retire.
Some people return to the workforce because they feel retirement isn’t for them. They feel as though retirement makes them sluggish and unable to be productive in their lives. I have known a few people who returned to working just because of those feelings.
Tip: It’s best to retire with few to no financial obligations (e.g. debt and mortgage). These financial obligations can or will eat up a big chunk of your retirement money. Remember that when more money is coming out of than coming in, there is a possibility that you may exhaust your retirement money in time.
3. The earlier, the better
It’s all about compounding interest. The earlier you save, the greater or better chance you’ll have more money in the future.
Compounding is probably one of the best discoveries of our time. In a nutshell, compounding interest is simply interest earned on interest. In much simpler terms, it is the interest calculated on the principal amount and any interests accrued for prior periods of deposits.
It means the early you invest, the greater or better chance your investment will grow. For example, if you are 20 years of age and invest $1,000 initially and subsequently $100/month for 30 years at 8.00%, then, you could have $146,002.51 30 years from now. If, however, you delay investing and start when you turn 30, initially invest $1,000, and subsequently invest $200/month for 20 years at 8.00%, then, you could have $114,490 according to investor.gov. Ten years can make a big difference as you can see in the given example.
Tip: Time flies fast. The next thing you know you are near retirement. If you have disposable money parked in the bank, you may consider investing it because you may grow your money (or loss money) through investment. But remember, inflation will rise faster than the bank’s interest rates, which means that your money will be worth less in the future.
4. Options, options, and options
When it comes to investment or retirement options, there sure are plenty out there. If somebody tells you that you are limited to just a few options, turn your back and walk away.
There are a ton of investment/retirements options that you can choose from. Some of these options include, but are not limited to, the following:
- Roth and Traditional IRAs
- Real Estate
- Defined Contribution Plans (e.g. 403b and 401k)
- Simplified Employee Pension (SEP) Plans (e.g. SEP IRA) <— if you are self-employed
- Social Security
- Precious metals
Again, these are just a few of the many options available to you or that you may be eligible to avail.
Tip: When it comes to investing, the first and best thing you can always do is to educate yourself. Avoid investing in something that you have no idea about. If you did just that, you are throwing darts everywhere in the hopes that you hit a bulls-eye.
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5. Medicare won’t cover everything
The usual age for eligibility for Medicare is 65 but there are exceptions to this. If you are retired and rely on Medicare, you will soon realize that, sadly, it is not your solution for all of your medical care bills.
Although Medicare covers a big amount of the medical treatments that elders need, there are certain services that it doesn’t cover. While many preventive care services are covered under Medicare, procedures or tests considered to be diagnostic may not be covered and copays, coinsurance, and/or deductible may apply.
Some of the services that Medicare won’t cover are eye exams (routing), hearing aids, just to name a few.
Of course, health insurance premiums for the elders are exorbitantly high. Retirees who need medical care may or will need to purchase better insurance with better coverage but this comes with a hefty premium price tag.
Tip: Some employers allow their employees to retire and bring with them the same health insurance coverage. In addition, these employers may or will pay the portion that they are currently paying now while you pay the rest. Remember, medical needs can cost you a fortune. If ever find a company that allows you to retire and retain the insurance coverage, think about working for that company.
6. Company matches
Company matches are free money. You can also consider it as a salary raise that you aren’t getting benefited now.
I’ve seen or heard a lot of young folks who are not contributing a certain amount to get the maximum company matches. There are many reasons that they fail to contribute as much as they should to get the max company matches. One of many valid reasons is that young people don’t make as much and making contribution may not be their top priority at the moment.
Of course, it’s not just about young people. A lot of veteran workers aren’t also contributing as much as they should. Again, they may have valid or not-so-valid reasons for doing just that.
Tip: Company matches are free retirement money. If you find it difficult to meet the maximum suggested contribution to get the maximum match, contribute as much as you can. If you can sacrifice a few things so you can free up some money, consider doing it. If you really want to get the maximum matching, you may need to change your lifestyle, spending habits, and become more frugal. For me, I rather sacrifice a little bit now, so I can have a comfortable life in the future.
Retirement can be overwhelming and daunting as it entails a great deal of preparation and uncertainties. Having said that, there’s no better time to think about retirement than now. There are sources of information that you can leverage for your own advantage. The information you need for your retirement is out there.