Common Retirement Myths That Could Derail Your Financial Plan

Planning for retirement can be complicated. You must understand what sources of income you'll have, how much money each income source will provide, and how much money you realistically need to live on.

Unfortunately, many people have misconceptions about some key areas of retirement planning. That's because they've bought into myths that simply don't match up with reality. To ensure you aren't one of them, check out the truth about four common misconceptions.

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1. Social Security benefits will increase if you claim them early

Social Security is a critical source of income for most seniors. But many people have bought into a misconception about one of the most basic facts about their benefits.

Specifically, close to half of all millennials and Gen Xers believe that if they claim Social Security early, their benefits will increase when they reach full retirement age.

Social Security does not increase at your FRA if you claim benefits ahead of schedule. If you shrink your benefits with an early claim, you get less money each month for the rest of your life. A claim at 62, for example, could reduce benefits by 30% compared to waiting until an FRA of 67. And benefits will not go back up at 67.

You must understand this reality before you claim Social Security, so you don't claim early based on a false belief and then find yourself disappointed with your benefits for life.

2. You can invest 10% of your income and be fine

There's another common misconception about how much you need to invest in your retirement plans. Traditionally, the rule of thumb was to try to invest 10% of your income. However, for many people, this is not enough -- especially if you want to retire early, start investing late, or want to replace a large portion of pre-retirement income. Longer lifespans also mean many people need to save more.

Instead of relying on an outdated general rule, set your own savings goals as part of your retirement planning. If you have an idea of how much income you'll need as a retiree and you plan to follow the 4% rule, multiply your target income number by 25.

This will reveal how much you need saved by the time you're ready to retire. Use an online calculator to break that big number down into a monthly savings target, based on projected returns and time left until your chosen retirement date. This approach is a more accurate way of deciding how much to invest than just sticking with the old standard of 10%.

3. Medicare will cover your healthcare costs

A third common myth involves healthcare spending. Specifically, many people believe Medicare covers their healthcare in retirement. And while it's true that Medicare provides discounted insurance for seniors, you still must pay premiums. And there's a lot Medicare _doesn't _pay for, including long-term care, most vision care, and hearing aids.

Fidelity estimated that a 65-year-old retiring in 2025 should expect to spend an average of $172,500 on healthcare and medical expenses during retirement. That's out-of-pocket spending. You must prepare for these costs by saving in a dedicated account or factoring in this additional expenditure into your income needs in retirement.

4. You'll spend less as a retiree

Finally, many people have bought into the myth that you'll spend less as a retiree, so you don't need to replace your entire income.

While this may be true for some people, it is not necessarily true for everyone. If you have expensive medical needs or if you want to travel or spend time doing expensive hobbies, you may spend more than you did while working.

You should think about the kind of retirement you want, how much income is needed to support it, and where that money is coming from. Knowing the truth about these misconceptions is a good first step so you can make a more realistic plan for a secure future.