Thrifty Thinking: 3 Misconceptions About Money And Retirement

At long last, there’s no alarm clock, no fighting traffic, no demanding boss.

You finally have plenty of free time.

But nothing is free. And the fact that life can be even more expensive after you’re finished working is one of the unpleasant discoveries about retirement.

Everyone looks forward to it, but not everyone plans sufficiently. Studies have shown that over half of surveyed retirees haven’t experienced the overall quality of life they expected in retirement – often due to financial misconceptions they had coming in.

“It’s not easy to plan accordingly; there are many variables,” says Joe Berry, an Investment Adviser Representative with Semmax Financial Group, Inc. (www.semmax.com). “Even with seemingly sufficient streams of income, it’s often not enough.

“You start with the fact that historically, the United States had three strong legs to stand on for retirement – substantial corporate pensions with retiree health benefits and a well-funded Social Security system. Today, the bulk of responsibility for providing retirement income has shifted to the individual.”

Berry gives three common financial misconceptions about retirement:

• Longer life means lasting health. The average life expectancy in the United States is a record 78.7 years, according to the most recent data from the National Center for Health Statistics. Many people infer that increased longevity means good health throughout the golden years, but that’s often not the case. The longer you live, the more likely you are to develop chronic health issues such as arthritis, heart disease and diabetes, according to studies like “Older Persons’ Health” by the Centers for Disease Control. Many families have not saved adequately for medical costs in retirement, Berry notes. “One of the things you should consider is that medical expenses can add additional costs over the length of your retirement, and then there’s the possibility of long-term care, which is very expensive by itself,” Berry said.

• Your house is the golden goose. Many retirees think their house is a dependable nest egg. But experts don’t expect a return soon to the overvalued housing bubble prior to the 2008 crash. “Fluctuations in the housing market could impact your retirement-income strategy,” Berry says. “Your home may not provide the backup retirement income you anticipate. Perhaps you’ve considered relocation to a senior community, but delayed that move to sell your home when prices recover.” Berry adds that the record home equity losses of recent years should teach pre-retirees not to place too much of their net worth in their home.

• Your money will outlast inflation. Retirees tend to spend more money on items that have a higher rate of inflation. Also, according to the U.S. Department of Labor statistics, older Americans use a substantially larger share of their budget for medical care and housing than does the general population. Berry notes pre-retirees often underestimate future inflation and how it can affect their budget. “Unless you’ve saved diligently, spending cuts will be essential in retirement,” Berry says.

“You may need to reposition assets to accommodate a longer life with fewer assets,” Berry says. “And you need to know about all the ways your money can be affected in your aging years.”

About Joe Berry

Joe Berry is an Investment Adviser Representative with Semmax Financial Group, Inc. in North Carolina (www.semmax.com). He is a licensed insurance agent in both property/casualty and life, and he holds his Series 65 and Series 3 CTA. Berry also is a licensed adviser in commodity trading. He joined Semmax after 18 years in management with a Fortune 500 company.