All retirees should understand the process of starting Medicare benefits at 65, the required minimum distributions you'll need to take from your retirement accounts, and how the Social Security earnings test works. If none of the above applies to you, you'll need to take about 10 minutes and sign up for Medicare on the Social Security Administration's website (or you can apply at your local Social Security office or over the phone). You might need to start taking larger withdrawals from your retirement accounts If you don't need the money in your retirement accounts, it may seem like a good idea to leave it alone or just withdraw a little bit. This rule applies to pre-tax retirement accounts, such as traditional IRAs and most 401(k), 403(b), and 457 accounts. Basically, the RMD rule says that after you reach 70 1/2 years of age, you need to start withdrawing at least a certain amount of money from your account(s) each year. You have until Dec. 31 each year to satisfy your RMD requirement, with the exception of the year you turn 70 1/2, in which case you have until March 1 of the following year. This isn't true, but the Social Security "earnings test" can result in some or all of your benefits being withheld if you haven't yet reached full retirement age. Specifically, in the eyes of the Social Security Administration, beneficiaries who work are divided into three categories: If you will reach full retirement age after 2017, $1 of your benefits will be withheld for every $2 you earn in excess of $16,920 ($1,410 per month). If you will reach full retirement age during 2017, $1 of your benefits will be withheld for every $3 you earn in excess of $44,880 ($3,740 per month). You can work and earn as much as you'd like, and you'll still collect your full Social Security retirement benefit.
Ideally, retirement is an idyllic time during which you can relax and do all the things that you’ve always wanted to do. But getting to the point where you can pay for the retirement you want isn’t easy; it requires hard work and sacrifice during your working years. And if you fall for any of these common retirement myths, then all that effort you put into saving over the years may be for naught.
1. 65 is the right age for retirement
Once upon a time, 65 was considered “full retirement age.” This was the age when many people both retired and filed for Social Security benefits, because they were now entitled to receive the full benefit amount for which they were eligible. However, as the average lifespan has climbed, the Social Security Administration has pushed the full retirement age forward a bit. If you were born between 1943 and 1954, your full retirement age is 66. For those born in the following years, retirement age creeps up by two months per year, meaning that someone born in 1955 would have a full retirement age of 66 years, two months. Everyone born after 1959 has a full retirement age of 67. If you claim Social Security at age 65 under the mistaken belief that that’s the best time to file, your benefits will be permanently reduced because you claimed them before your actual full retirement age. And without the help of Social Security benefits, most people wouldn’t be able to afford retirement at age 65 without putting a dangerous strain on their retirement savings.
2. Stocks are too risky for retirement investments
Stocks are definitely a riskier investment than, say, government bonds or bank savings accounts. However, stock investors are rewarded for taking on risk by getting a comparatively high average return over the long haul. Without the help of that high average return, you’d need to save much, much more money during your working life to get enough retirement savings built up. For example, let’s say you’ve saved $1,000 per month (which adds up to $12,000 per year) and put it in government bonds, getting an average annual return of 2%. At the end of 30 years, you’d have $496,553 saved up — which is nowhere near the amount the average retiree needs. On the other hand, if you’d put that same $1,000 per month in stocks and gotten an average annual return of 7%, you’d have $1,212,876 saved up after 30 years. That’s enough to finance a very comfortable retirement indeed. The most significant risk factor with stock investments is their volatility: while they show terrific returns over the long term, in any given year they can climb or fall dramatically in value. Thus, as you approach retirement, it’s wise to shift most of your retirement funds over to bonds instead. That way you can have your cake and eat it too: enjoy the high returns of stocks,…