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Avoid five common retirement myths

Retirement planning requires a clear-eyed analysis of future needs and income. Yet many individuals view retirement through rose-colored glasses.

Avoid five common retirement myths

Retirement planning requires a clear-eyed analysis of future needs and income. Yet many individuals view retirement through rose-colored glasses.

The American Association of Individual Investors lists some of the most common myths and how you can bring reality into focus.

Myth #1:

You will not need as much money during retirement as you do now.

The thumb rule that says you’ll need 70% of your pre-retirement income to maintain your current lifestyle may not apply. Retiring frees time for travel, leisure activities, hobbies and other things you might like to do. They take cash. Plus, medical expenses may rise at a faster rate than during your pre-retirement years. Also, your overall tax rate may not drop very much.

Myth #2:

My retirement years won’t last all that long.

You may live longer than you may think. People in their 50s and 60s today are generally healthier than previous generations. If you’re 65, your life expectancy is about 21 years. That means you have a 50% chance of dying by year 21. But you also have a 50% chance of living longer.

Myth #3:

Social Security will provide enough income for my retirement.

Social Security accounts for about 38% of the average retiree’s income. Benefit hikes may continue to occur. But Uncle Sam’s cash flow bind suggests they may become less generous than in the past. Plus, the age that you must reach in order to receive full retirement benefits is rising over the next few years. Consider Social Security a supplemental benefit to your retirement financial planning, not the foundation.

Myth #4:

Medicare will take care of my health insurance.

Typically, Medicare pays less than half of a retiree’s medical bills. You’re usually not eligible until age 65. In addition, many employers are cutting back on medical coverage for retirees due to the cost. Predicting retirement medical expenses and figuring out how to cover them is a huge — potentially the biggest — retirement planning issue.

Myth #5:

All of my assets are in safe vehicles for long-term accumulation and do not need to be watched closely.

All investments need to be watched. Cash flow is crucial. Figuring out how to turn equity in farmland into cash for retirement living takes a lot of effort. That’s particularly true when someone in the family wants to continue farming and off-farm heirs are involved. View retirement planning, estate planning and intergeneration farm business transfer planning as a total package.

Key Points

• Retirement, estate and intergeneration business transfer planning intertwine.

• Health care and retirement cash flow needs may direct retirement lifestyle.

• You may live a lot longer than you expect. Hopefully, that’s a good thing.

Mailbox shows better times ahead

After what seemed like a fairly lengthy hiatus, the number of credit card applications flooding my mailbox seems to be steadily rising.

Optimistically, I hope that means the U.S. economic recovery is on solid ground.

However, unemployment is still hovering in the 10% area. Americans seeking jobs and those who have become discouraged and given up the job search likely still see recovery as being a good ways off.

A cynic might have a different view. Some think easy credit contributed to the near economic meltdown. Hints that easy credit is resuming might suggest that we, financial institutions and regulators learned nothing during our gut-wrenching experiences since November 2007. — John Otte

This article published in the March, 2010 edition of PRAIRIE FARMER.

All rights reserved. Copyright Farm Progress Cos. 2010.

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