Don't fall for these retirement planning myths

Saving for retirement is hard enough, but you can make it downright impossible if you harbor some surprisingly common misconceptions about it. For example, believing that an inheritance windfall will bail you out if you haven't saved enough of your own money.

Nearly half of investors said receiving an inheritance is part of their retirement funding plan, according to a recent survey by Natixis Global Asset Management. And more than three-fourths said they're counting on family support to help fund their retirement.

Of course, for most people it's simply wishful thinking to rely on an inheritance or family assistance to fund their retirement. Yet almost two-thirds of millennials think a financial inheritance from their parents or grandparents will be important for meeting their retirement needs. But 40 percent of boomers don't plan to leave any inheritance. Of those, 57 percent don't think they'll have any money to pass down.

And most likely they're right: The 2017 Retirement Confidence Survey reports that only 35 percent of workers age 55 and over have $250,000 or more in retirement savings. And $250,000 isn't enough to fund a lengthy retirement and will most likely get used up completely on retirement spending. 

For most boomers, it will take at least $500,000 and more likely $1 million in savings to fund a lengthy retirement of their own and have money left over for an inheritance. Unfortunately, these savings amounts are way beyond the resources of most older Americans.

Let's take look at some additional misguided thinking about retirement. The same Natixis survey reports that only about one-third of investors expect Social Security will be a very important source of retirement income, including 47 percent of boomers and 35 percent of millennials. Actually, Social Security will be the most important source of retirement income for the vast majority of workers.

A current project by the Stanford Center on Longevity in conjunction with the Society of Actuaries shows that Social Security will provide 75 percent to 90 percent of the total retirement income for workers with less than $500,000 in retirement savings (the vast majority of older workers).

Speaking of misguided thinking about Social Security, almost half of all millennials don't expect Social Security benefits will even be available by the time they retire. But that's too pessimistic. Social Security is the most popular federal program ever. As long as Americans vote and workers pay their taxes, chances are very good we'll have Social Security.

Here's more off-base thinking. The Natixis survey also reports that millennials expect, on average, to retire at age 59. That simply won't happen unless they save large amounts of money or plan to live in a tent during their retirement. 

In reality, they should expect to work into their mid to late 60s or early 70s. And that inheritance they were counting on from mom and dad? With today's extended lifespans, the parents of those 59-year-old millennials' will still be alive and kicking, potentially setting up an uncomfortable expectation

Now for some more realistic thinking: Half of all Americans, including 60 percent of millennials and 43 percent of boomers, say they'll rely on cash from the sale of their homes to afford life in retirement. That makes sense, given that older, middle-income Americans tend to have more home equity than retirement savings, according to a recent report from the Boston College Center for Retirement Research. 

In addition to selling and downsizing, older workers can also explore using reverse mortgages to help to fund their retirement.

 As a result of these trends, the most important decisions facing older worker are:

And here's one last realistic result from the Natixis survey: Just over three-quarters of Americans say it's up to them, not the government, to make sure they have enough money to live in retirement. Well said! 

And I'd also include not believing that your family will be there to bail out your retirement. Boomers and millennials alike need a retirement reality check. That's the hard truth of the 21st century.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.