5 Retirement Truths You Should Know

May 31, 2016

When it comes to retirement, it can be hard to decipher myth from reality. Information sources can often contradict each other, and rumors abound. For those preparing for retirement, it can be hard to know what to expect and which steps to take.

Below, we’ve collected five retirement truths everyone should keep in mind before ending their working years for good:

  • Social Security is a major source of income for many retirees. While many Americans can draw on 401(k) plans, pensions, and other assets in their golden years, a large number still rely heavily on their Social Security benefits. A recent survey found that just 39 percent of pre-retirees said they expect Social Security to make up at least half of their retirement income, yet it actually accounts for at least half of income for 6 in 10 retirees over the age of 80.
  • The 4 percent rule isn’t foolproof. Conventional wisdom says that an annual withdrawal rate of 4 percent or less is enough to sustain most nest eggs through retirement. However, that’s not always true. Living longer than expected, high personal costs (for health care, for example), and poor investment performance can all make a 4 percent withdrawal rate unrealistic. Some researchers have suggested withdrawal rates closer to 2 percent might be a better bet.
  • Medicare won’t pay for all health costs. While Medicare pays for many things, beneficiaries still pay for many things out of pocket due to program deductibles and other cost-sharing rules. An Employee Benefit Research Institute analysis found that, in 2012, Medicare covered 60 percent of health expenses for people 65 and up. EBRI suggests that a 65-year-old man would need to accumulate $68,000 to have a 50-50 chance of meeting retirement health care costs. A woman would need $89,000, due to females’ longer lifespans. These estimates, however, don’t include costs associated with long-term care.
  • Most Social Security recipients won’t lose benefits if they work longer. Social Security recipients face an annual limit on work-related earnings—$15,720 per year for 2015. If you collect benefits before full retirement age, those benefits are reduced $1 for every $2 earned over the limit. At full retirement age, it’s $1 for every $3 above the limit. After full retirement age, the reduction ends. What’s more, the reduced benefits for those working and collecting before full retirement age aren’t truly lost. Benefits are just increased at full retirement age to account for the benefits withheld earlier.
  • Many retirees enjoy working longer. A recent survey found that older workers were often still in the workplace voluntarily. Fully 61 percent said they liked their work, and 48 percent said it make them feel valued. However, retirees reported similar levels of satisfaction. Almost 85 percent said retirement is the most rewarding time of their lives.