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Some myths just won't go away, and some are entertaining enough, in their own way. But the myths surrounding retirement can be anything but fun. Let's take a look at four common retirement myths and set the record straight.
Some myths just won’t go away, and some are entertaining enough, in their own way. But the myths surrounding retirement can be anything but fun. Let’s take a look at four common retirement myths and set the record straight.
Myth: If you own your own practice and your practice appreciates in value, you won’t need any other retirement savings.
Ownership or even part ownership in a practice is an asset, without question. But how much that asset is worth will fluctuate over time. While you can certainly estimate the value of your practice and take that estimate into account when considering your projected retirement savings, keep in mind that it is only an estimate. The actual market value of your practice may increase or decrease significantly, due to factors outside your control, such as the overall economy, the economic health of your municipality, the number and success of competing dentist practices, and many more.
A good rule of thumb in thinking about how much you’ll need for retirement is that, in order to live the lifestyle to which you’ve grown accustomed, you’re likely to spend about 80% of what you were spending when you were employed. If your only source of retirement income is your practice, make sure you haven’t substantially overestimated how much the practice is worth. You’ll also need to consider the timing of the sale. Trying to sell a practice in an economic downturn, even if it’s short-term, could result in a sale price much less than you anticipated. Relying solely on the sale of a practice may mean working significantly longer than you had planned.
Myth: Retirement means never having to work or save again.
What is “enough” money for retirement? Chances are, you don’t really know, and the reason you don’t know is that you can’t be certain how long you’re going to live, what your health will be, or any number of other factors that determine your expenses while in retirement. Yes, you can estimate your life span and your financial needs. Yes, those are just estimates. Life throws its little curveballs, and you must be ready with contingency plans and the ability to adjust your own expectations.
Set retirement goals, for sure, and do your best to estimate what you’ll need. But also understand that many variables are at play, and just because you’ve retired doesn’t mean you’ve reached some magical realm where all your needs are cared for.
Myth: Most if not all of your expenses will go down when you retire.
As we discussed a couple paragraphs ago, most people will need less money to live in retirement than they do while working, but it may not be as much less as you think. If you’re planning to move to take advantage of lower housing costs, no state taxes, cheaper living, and perhaps less travel, have you considered that many states that don’t charge state income tax and many municipalities that have very low property taxes make up for that revenue shortfall through increased sales taxes?
Your expenses may well be lower when you retire, but a period of inflation could mean that you will need more money to buy the same products. Also keep in mind that state tax policies and property taxes aren’t written in stone; they’re not only subject to change, they’re downright likely to change. During your expense forecasting, don’t be overly generous in the “savings” you think you’ll see from your current expenses. Instead, overestimate expenses wherever you can, so that you can put aside more now. Having extra is always preferable to not having enough, especially while you’re still in your active career.
Myth: Medicare will handle all your healthcare needs.
Simply put: It will not. As you know, Medicare covers some aspects of dental care, but does not provide comprehensive coverage. The same is true for medical care. Medicare doesn’t cover all medications, and it doesn’t cover all forms of care. Long-term care is one major gap in Medicare coverage, but there are others. For example, depending on your plan, you will pay a deductible and some co-payments for an extended hospital stay. Look into supplemental coverage, private health care coverage, health savings accounts, and long-term care insurance.
Believing in any or all of these myths can be damaging, because they may prevent you from putting aside enough money or developing a contingency plan. The take-home message is not that all forecasting is fruitless, but that forecasting based on myths is like investing in a unicorn farm: Don’t do it.