Common misconceptions about saving for retirement

February 27, 2020

In preparing for your financial future, it’s important to separate myths from reality.

How much do you know about saving for retirement? Check your retirement planning assumptions against these common misconceptions — then decide if it’s time for a different approach.

I’ll wait until I’m earning more to start saving.

It’s not unusual for younger workers to postpone saving for the future, thinking they have plenty of time to build a nest egg. But those who put off saving for retirement lose the benefit of time and compound interest.

Compounding happens as you earn interest or dividends on your investments and reinvest those earnings. Because the value of your investments is then slightly higher, it can earn even more interest.* The earlier you start, the more opportunity there is for your money to grow. When you delay saving for retirement, you’ll have to set aside a lot more of your income later on to catch up.

What little I can afford to save isn’t going to make any difference.

Could you afford to live without one percent of your salary? For someone who earns $40,000 per year, that’s less than $8 a week. Start with a one percent contribution to a retirement savings plan like the Retirement Savings Plan of the Presbyterian Church (U.S.A.), and see how well you can manage day-to-day expenses. Then, each time you receive an increase in your pay, you will automatically be saving more. Get started today and see how a little bit of money can grow over time.

A general rule of thumb is to try to save 15 percent of your pre-tax income for retirement. If that number is too far out of reach right now, consider where you might reduce expenses for greater savings. Then challenge yourself to boost your contribution to the Retirement Savings Plan, by at least one or two percent each year, until you reach the recommended amount.

With Social Security and Medicare, I don’t need to save for retirement.

A sound financial plan depends, in part, on having realistic expectations about what your living expenses will be in retirement, and how you will pay for them.

Most of your current expenses (aside from a mortgage and commuting costs) will stay about the same, while healthcare expenses continue to increase. If you’re relying on the federal government for help, keep in mind that Social Security benefits are designed to replace only about 40 percent of your income once you retire — and this will vary, depending on many factors. Many seniors need about twice that amount.

When it comes to healthcare in retirement, retirees must pay Medicare premiums, and there are things that Medicare doesn’t cover — including long-term (or custodial) care, most dental care, dentures, hearing aids (and the exams for fitting them), eye exams related to prescribing glasses, and routine foot care. According to Fidelity Investments, administrator of the Retirement Savings Plan, a 65-year-old couple that retired in 2019 can expect to spend $285,000 in healthcare and medical expenses throughout retirement.

About the Retirement Savings Plan

If you participate in the Retirement Savings Plan, log on to Fidelity’s Planning and Guidance Center to assess your financial plan and investment strategy, or create one. Then speak with a licensed Fidelity retirement planner (in person or over the phone, at no charge) to discuss your unique financial situation. Call 800-642-7131, Monday through Friday, 8 a.m. to 9 p.m. ET, to get started.

If you don’t already participate in the Retirement Savings Plan, learn more about the benefits of participating. Then talk with your employer about how to get started. If your employer does not offer the plan, ask them to contact the Board of Pensions at 800-773-7752 (800-PRESPLAN) for more information.

*Investing involves risk, including risk of loss. The value of your investment will fluctuate over time and you may gain or lose money.