Top 6 American Retirement Myths: What Your Retirement Benefit Won't Cover

You can spend decades preparing for retirement, but you're still not immune from falling prey to common retirement benefit myths. Edition Money Talks News published the top 6 misconceptions about retirement in America, the belief in which can cost you money and lead to unpleasant financial surprises.

1. Myth: You can always work longer if you haven't saved enough.

People often think they can just postpone retirement and continue work full or part day if they have meager retirement savings. 72% of Americans think they will continue to work for a paycheck after they retire. This was shown by a study conducted in 2021 by the non-profit organization Employee Benefit Research Institute (EBRI).

Reality: Most workers think they can continue working after they retire. But the truth is that in 2021, only 30% of retirees were actually able to continue working after reaching retirement age. What's more, an EBRI study found that nearly half of retirees left their jobs earlier than planned. Some people may have retired earlier because they have the financial means. But health problems, layoffs or family needs can force others out of the workforce sooner than they expected.

2. Myth: Social Security will cover all my expenses

An EBRI study found that 87% of workers and 92% of retirees expect Social Security to be their main or only source of income when they retire.

Reality: indeed, many workers rely on social security to pay most or all of their bills. But if you are planning to join this group, then you will most likely have to change your lifestyle. The Social Security Administration emphasizes that retirement benefits were never meant to be your only source of income and cover all expenses.

If you started receiving your pension when you reached full retirement age in 2021, Social Security will only cover part of your costs:

• about 28% of your pre-retirement income if you were earning more than the national average;
• 42% - for people with an average income;
• 78% - for people with income below average.

3. Myth: Retirees pay almost no taxes

When you leave your job, you may think big tax bills will be a thing of the past. After all, you don't have to worry about Uncle Sam taking paychecks, right? The problem is that many retirees are unaware of the tax liability they incur in connection with retirement income.

Reality: if you have a traditional IRA or 401(k) account, you will need to pay income tax on every withdrawal from those accounts. You also cannot avoid tax by postponing withdrawals indefinitely, as the government requires that the money be used from the time the beneficiary reaches 72 years of age.

In addition, your Social Security benefits may be taxed if you earn too much from various sources of income. As we reported last year, half pensioners now pay income tax on at least a portion of their Social Security benefits.

4. Myth: After I retire, I will spend significantly less.

Retirement means giving up commuting, business attire, or going out to lunch at cafes near the office. After age 60, you can also expect to pay off all your debts, pay off your mortgage, and so on. However, even if all this is true, this does not mean that your costs will drop significantly.

Reality: The average US resident aged 65-74 spent $52 in 356. This is what the 2020 consumer spending survey from the Bureau of Labor Statistics showed. That's a pretty substantial amount, and probably more than many expected to spend after retirement.

5. Myth: Old age is best spent in your own home.

Many choose to spend the years after retirement and before death in their home. They don't want to move to a retirement community, a nursing facility, or a nursing home. Nearly 2021% of Americans aged 90 and over want to spend their old age in their home, according to a 50 survey by nonprofit aged care organization Capital Caring Health.

Reality: people may want to spend their old age at home, but this is not always possible. The non-profit organization United Disabilities Services Foundation reports that only 1% of homes in the US have conditions that are comfortable for the life of an elderly person (just that movement, access to food, medicine, etc.). This may be one of the reasons why 37% of older people in the US now live in institutions.

6. Myth: Medicare will cover all my medical expenses.

Medicare provides essential health insurance to millions of Americans over the age of 65. But you can not count on the fact that it will cover all your expenses.

Reality: Depending on your plan, Medicare may not cover dental care, vision care, or hearing aids. Also, no Medicare plan will pay for ongoing long-term care.