Five myths about retirement that can lead your clients astray

Whether you are decades away from retirement or it's right around the corner, it's important to separate fact from fiction when it comes to planning for your post-work life. Here are five common — and often costly — myths that often mislead people about life in retirement. Keeping them in mind can help you avoid missteps and achieve your goals for a happy and satisfying retirement.

Myth #1: Retirement life will be less expensive

Retirement often frees up more time to pursue other interests and hobbies. This may include more travel, social activities and other pursuits that require a financial commitment. Depending on your goals, be prepared for life in retirement to cost more than you might think. In particular, be cognizant that many people overestimate how much money they'll save by "downsizing" their homes. While they may save on property taxes and utilities, they may encounter new costs related to their new, smaller living arrangements, such as homeowner association and facility fees.

Myth #2: Health insurance is simple — and free!

Medicare is a critical benefit for retirees, but it wasn't designed to cover everything. Medicare involves a complex combination of various policies and full coverage comes with costs. Medicare Part A, the basic coverage for hospital insurance, is free for most Americans over the age of 65. That said, other forms of Medicare have costs associated with coverage. According to Medicare.gov, in 2023, the standard premium for Medicare Part B, for physician services is $164.90 per month. Medicare Part D, for prescription drug coverage, also involves monthly premiums. Most retirees will pay premiums for supplemental health coverage or choose a Medicare Advantage plan to protect them. Copays and deductibles can be included. Plan on health care as a major expense in retirement.

Myth #3: Social Security will take care of my financial needs in retirement

According to the Social Security Administration, more than one-third of Americans rely on Social Security for more than half of their income in retirement. That said, it's important to be realistic. The average Social Security benefit for retired workers in January 2023 is $1,827 per month. Even if you double that for a married couple, it is likely to be far less than your pre-retirement income, and far from enough to meet your needs in retirement. That's why saving in a workplace retirement plan, IRAs and other types of investment vehicles, is critical to protect your long-term financial security.

Myth #4: Taxes won't be a major concern in retirement

You might think that because you aren't working, taxes don't come into play. The reality is far different. Most people are required to pay taxes on a portion of their Social Security income. What's more, distributions from workplace savings plans such as 401(k)s, 403(b)s and traditional IRAs are generally subject to income tax as well. Most income generated by bonds, bond funds and CDs are taxable. You may even need to make quarterly estimated tax payments on your investment income and retirement plan distributions.

Myth #5: Retirement will mean it's time to kick back and relax

Given the longer life expectancies many Americans enjoy today, the reality is that leaving your position with a company or ending a career doesn't necessarily mean you are done with work. Many people have the desire to remain active. This can take the form of consulting, using the talents and experience you have to continue to earn money. It also might mean spending significant time volunteering for organizations you support. In short, retirement doesn't mean setting your talents, abilities and energy aside. For many, it's the start of a new chapter in life.

Planning helps you stay reality-based

As you structure your retirement plan, it makes sense to put some thought into what life will look like, and how that might impact your living costs. A good plan will help you set these myths aside and deal with the real world of retirement.