Misunderstandings about retirement planning can lead to costly errors, potentially erasing tens of thousands of dollars in long-term savings. From delaying Social Security to underestimating healthcare costs, these myths undermine financial security in later life.
- Delaying Social Security until age 70 can increase monthly benefits by up to 8% per year compared to claiming at 62.
- The average 65-year-old couple will spend approximately $330,000 on healthcare in retirement.
- Nearly 40% of workers do not contribute enough to receive their full employer 401(k) match.
- Retirees often underestimate spending, needing 80% to 90% of pre-retirement income, not the commonly cited 70%.
- Assuming a 7% annual return may lead to unrealistic projections; long-term average is closer to 6.5%.
- Delaying retirement savings by five years can reduce final account value by up to $120,000.
Many Americans approach retirement with assumptions that, if unchallenged, can result in a shortfall of over $100,000 by the time they stop working. One pervasive myth is delaying Social Security benefits until age 70—while this strategy can boost monthly payments by up to 8% per year, many retirees claim benefits at 62, locking in significantly lower payments for life. Another widespread error is underestimating healthcare expenses. The average 65-year-old couple retiring in 2025 can expect to spend approximately $330,000 on medical care throughout retirement, a figure that includes insurance premiums, prescriptions, and long-term care—costs often overlooked in early planning. A third misconception involves relying solely on employer-sponsored 401(k) plans, with nearly 40% of workers failing to maximize employer matches, effectively leaving free money on the table. The myth that retirees need only 70% of pre-retirement income also proves misleading. Studies show that post-retirement spending often remains at 80% to 90% of income due to ongoing expenses like housing, travel, and healthcare. Additionally, many assume they’ll continue earning investment returns at 7% annually, but historical data shows a long-term average of 6.5% for a balanced portfolio, with inflation and fees reducing real returns. These missteps compound over time. For example, delaying retirement savings by just five years can result in a $120,000 reduction in final account value, assuming a 6% annual return and $6,000 annual contributions. The impact is particularly severe for those starting in their 30s or 40s, where compounding can be fully leveraged. The consequences extend beyond individuals—families may face financial strain, and public programs may bear additional pressure if more people rely on them later in life.