Are you dreaming of a leisurely retirement enjoying a second cup of morning coffee, or is a sunrise round of golf more your speed? Either way, you'll need to know the facts so you can guide your retirement dreams with realism. Historically, the road to retirement has been bumpy for many women.
In fact, the Social Security Administration reports that 17 percent of all elderly, single women live in poverty. By recognizing the following myths for what they are, you can take control of your financial future and help improve this shocking statistic.
Myth No. 1: Social Security will take care of me in retirement.
The reality is that Social Security income will probably not be enough. At the start of 2011, the average monthly retirement benefit reported was $1,177. SSA data also shows that women's benefits are almost a third lower than men's. Not only do women earn less than men during their working years, they also take more time away from work than their male counterparts, according to the U.S. Department of Labor.
Add the uncertain future of Social Security to these statistics, and you can see why it is more important than ever to plan for additional income sources when determining your retirement income target.
Myth No. 2: I won't need nearly as much to live on when I retire.
The assumption sounds reasonable when you consider the costs associated with raising children and commuting to work each day. On the other hand, if you want to spend your leisure time traveling, it will come with a cost. It is probably safe to assume that you will have higher health care costs - and potentially long-term care costs - in your later years, as well.
A rule of thumb that many financial professionals use is that you will need 60%-80% of your current income in retirement, (adjusted for inflation,) to maintain your current lifestyle. It might be a good idea to test your planned budget for a few months before you retire. That way if your income and expenses seem unrealistic, consider postponing retirement or looking for ways to decrease your expenses.
Myth No. 3: My 401(k) contributions will fund my retirement without my involvement.
It's true that a 401(k) is a smart way to save for retirement with before-tax dollars. Since many employers offer a matching feature, you may have an opportunity for instant return on your invested dollars. The good news is that many women are contributing to their employer-sponsored plans. Unfortunately, a common misconception is that you can sit back and the plan will manage itself.
The fact is, you might get even more benefit from your plan by taking an active role in your investment selection. If you have several years until retirement, choosing investments that are too conservative may cause you to fall short of the dollars you need. If decisions like these seem overwhelming, you do not have to make them alone.
By establishing a relationship with professionals who can help you at critical times, you can face your unique financial challenges with reality and eager anticipation of your retirement dream.
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