Ready to bust some myths? (No, we’re not setting off rockets or combining Diet Coke and Mentos. We’ll leave that to the Discovery Channel’s “MythBusters” guys.)
I’m talking about retirement myths. And there are a lot of them.
This is the first in a series of posts by Joe Moklebust, Director Business Development – Retirement Solutions, and me that debunk commonly held beliefs about retirement. I’ll tackle the first myth: “Between my pension plan and Social Security, I’ll be fine.”
This may have been the case for your parents’ or grandparents’ generations. In the 1940s, for instance, the cost of living was dramatically lower, company-funded pension plans were the norm and the average life expectancy was about 65 for women and 60 for men.
Today, all that has changed:
- Much higher cost of living. An item purchased for $20 in 1940 would cost $333 today. That’s an increase of 1,564%.
- The demise of the traditional pension plan. The number of traditional pension plans hit 175,143 in 1983. As of January 2013, that number had shrunk to an all-time low of 22,697.
- Increased life expectancy. The average life expectancy today for women is 81 years; for men, it’s 76.
If you do have a retirement plan at work, it’s most likely a 401(k) or 403(b) plan. While these plans offer great benefits, they rely on contributions from employees. That means you are responsible for setting aside enough money for your own retirement.
Now, I’m not saying you won’t get any Social Security benefits. That said it’s not a good idea to count on Social Security for the bulk of your retirement income. Today, for instance, Social Security benefits only replace about 40 percent of retirees’ earnings, on average. And over time, as the program faces solvency challenges, that percentage may very well go even lower.
Here’s the bottom line. Now more than ever, you’re responsible for funding your own retirement. Company-sponsored retirement plans can help, but the responsibility is increasingly on your shoulders.
Watch for more retirement myth-busting in the next post, from Joe Moklebust. He’ll discuss healthcare costs during retirement, including what Medicare does, and doesn’t, cover.
Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.