In this empowering episode of Next Act Ninjas, Rachael Van Pelt dives into the world of retirement planning, debunking seven pervasive myths that can derail your financial future. From the misconception that Social Security is sufficient to cover retirement expenses, to the myth that downsizing will solve financial challenges, Rachael offers clarity, action steps, and inspiration to help you take control of your wealthspan.
In this empowering episode of Next Act Ninjas, Rachael Van Pelt dives into the world of retirement planning, debunking seven pervasive myths that can derail your financial future. From the misconception that Social Security is sufficient to cover retirement expenses, to the myth that downsizing will solve financial challenges, Rachael offers clarity, action steps, and inspiration to help you take control of your wealthspan.
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Packed with real-life examples, practical advice, and Rachael's signature blend of expertise and encouragement, this episode is your roadmap to building a secure and vibrant retirement.
Whether you're ready to retire or just starting to plan, tune in to discover how to create a future you can thrive in—financially and emotionally. Take action today to create your best next act!
Chapters
00:00 Introduction to Retirement Finance Myths
01:15 Myth #1 - Social Security Will Cover Most of Your Retirement
05:26 Myth #2 - Your 401(k) Match Is Enough
09:32 Myth #3 - You Can Work as Long as You Want
11:54 Myth #4 - Medicare Will Cover All Your Medical Expenses
14:32 Myth #5 - Downsizing Will Free Up Money for Retirement
17:20 Myth #6 - It’s Too Late (I’m Too Old) to Catch Up on Savings
20:29 Myth #7 - You Can Wing It
Hey, hey, hey, welcome back to Next Act Ninjas, the number one podcast for mastering your health and wealth longevity. I'm your host, Rachael Van Pelt, a retired healthspan scientist turned realtor and coach. Today, I want to talk about retirement finances because it's a topic that is filled with a lot of myths, misconceptions, and let's face it, quite a bit of fear. It's not surprising given that nearly two thirds of Gen Xers and Baby Boomers say that they're afraid of outliving their savings. Most of us put our heads in the sand and try not to think about it too much. But here's the thing, retirement planning doesn't have to feel overwhelming and it's not too late to play catch up. Today, I want to bust some of the biggest myths about retirement finances so that you can face your future with a lot more confidence and a whole lot of clarity. Along the way today, I'm going to give you some action steps that you can take so you can radically improve your wealthspan. So might want to grab a pen and some paper so you can jot down some notes.
The first myth that we have to dispel is this idea that social security is going to cover most of our retirement needs. That political landmine that we've come to rely on as a safety net. It was never designed to replace our full income in retirement. It's a supplement, not a solution, right? The average social security check is about $2,000 per month or $3,000 for a couple. And yet the average living expenses for most retirees is easily two to three times that amount. And we can't forget that social security payments are taxed and they aren't keeping up with inflation.
In fact, in 2025, the cost-of-living adjustment (COLA) for social security is only going to be about 2.5%. That only amounts to about $50 per month for most individuals or $75 per month for a couple. While any increase might help, it's hardly going to make up for the 4 to 5 % annual inflation rate that we've seen over the past couple of years. Which means that social security checks are effectively losing purchasing power every year. And that makes it harder and harder for people to cover essentials like housing, healthcare, and groceries. You know, It's been estimated that someone who's been collecting Social Security since 2010 has seen their monthly check lose 20% of its buying power over the last 15 years. That's painful, isn't it?
Now, if the next administration finally does away with income tax on Social Security, that could help today's retirees a lot, but it could also accelerate the demise of Social Security altogether if we don't find other sources of revenue. Right now, financial analysts suggest that Social Security is going to run dry by 2033. That's crazy, isn't it? That's only eight years away.
So what's the solution? Well, we have to build other income streams, whether that's investing in a 401k, putting our money in an S&P index fund, into real estate, bonds, cryptocurrencies, doesn't matter. The goal is to create a diversified income plan so that you're not relying on just one shaky stool leg to support your retirement dreams.
I worked with a couple who originally planned to rely heavily on their social security for retirement, but when they did the math, they realized they were going to fall nearly $30,000 short every year. So we had to help them build a strategy to bridge the gap. I helped them buy a second property that will eventually become their downsize, their primary home, and in the meantime is going to generate rental income. They also started maxing out their 401k contributions, but I'm going to get to that in a minute. Before we talk 401ks, I want to give you an action step to take as soon as you're done listening to this podcast. Write this down.
Go to the ssa.gov website, the Social Security Administration website. Go to that website and check out your latest social security statement to see what your benefits will be, assuming you're not already collecting. I want you to estimate how much of your expected expenses in retirement will be covered. Do you think your social security payments are going to cover 50% of your monthly expenses? 30%? You need to know the gap so you can determine how much you will have to come up with from other retirement income streams.
And please don't assume that your monthly expenses will be less than they are now. You Even if your house and your cars are paid off and you don't travel very much, inflation and medical expenses are probably going to increase your cost of living. You know, I estimated for my husband and I that our social security is only going to cover about 25% of our expenses nine years from now. 75% is a big gap for us to cover, isn't it?
And that leads me to the next myth that we have to dispel. This idea that your 401k match is enough. Do you have a 401k through your work? Does your company match what you put in? Are you taking advantage of that match? I think many of us are good about opting to automatically contribute to our 401k every paycheck. When we were hired, we took the set it and forget it approach thinking, "hey, you know, I'm contributing up to the company match, I'm good". But here's a spoiler alert. That's not enough. Most companies match 50% of your contribution up to 6% of your salary or, if you're lucky, dollar-for-dollar up to 5%. While that's free money, it's still not going to be enough to meet your retirement goals, because most experts recommend saving 15 to 20% of your salary. That's right, it's quite a bit, isn't it? Are you doing that? Are you saving 20%? I know few of us are. But if you can max out your 401k contributions, do it. Because every dollar that you invest today compounds for tomorrow. If you're under the age of 50, you're able to contribute up to $23,000 every year to your 401k. If you're over 50, you can invest up to $30,500. And that can go a long way towards catching you up to where you want to be in retirement.
Just to paint that picture for you, if you're 50 and you can max out your contribution until 65, and that 401k investment grows about 7% annually, you could add $750,000 to your retirement savings. That is the power of compound interest over 15 years. Now I get it, that can be really hard, right? Setting aside 15 to 20 % of your salary for more than a decade is not easy. It likely means forgoing luxuries today so you can reap those benefits tomorrow. But if you can do it, your future self will thank you. Even contributing $25k per year is going to net you nearly $630,000 in 15 years. So I'm going to encourage you to take these action steps. Take the time to calculate how much you are currently saving and how it compares to that 15 to 20% target. Can you increase your contributions and take advantage of that compounding to catch up your savings? Don't stop at the 401k either. Look into additional retirement vehicles like a Roth IRA or a health savings account (an HSA) to boost your savings.
Roth IRAs are great because they offer tax-free growth and tax-free withdrawals in retirement. That means you're not just saving now, you're also shielding yourself from potentially higher tax rates in the future. Unlike traditional IRAs, Roth IRAs don't have required minimum distributions (or RMDs) so that money can continue to grow tax-free for as long as you leave it in there. And that flexibility is great, it makes them a great tool for creating financial security in the future.
HSAs, provide a triple tax benefit, the contributions are tax deductible, the growth is tax-free, and when you withdraw that money for qualified medical expenses, that's also tax-free. And once you turn 65, you can use that HSA just like a traditional IRA. You can spend it on other non-medical expenses if you want without penalties, it's just taxed as ordinary income. So HSAs are a powerful all-purpose savings vehicle.
But now let's address myth #3, this idea that you can work as long as you want. We've all heard it. People say, "I'll just keep working if I need more money. You I won't retire". But let's be real, life doesn't always cooperate. Research shows that 40 to 56% of people over 50 are forced into early retirement. Why? because of health problems, unexpected layoffs, and even outdated skills. And we all know that finding a new job at 60 is not exactly a cakewalk.
My client, Sarah, when she was 58, her company downsized and eliminated her specialized role. Even though she had an impressive resume, she struggled to find a new position. And while Sarah had planned to work until she was 65, thankfully she'd started saving aggressively when she was 50. So she was able to use the savings to bridge the gap while she launched an online consulting business. Now she hasn't fully replaced her corporate salary, but she enjoys the freedom that her encore career is giving her and that income she does bring in is a bonus. So the bottom line is you have to plan as if retirement's going to start earlier than you expect. That way, if you get to keep working, any extra income's a bonus, it's not a necessity. So I highly recommend that you build an emergency fund, one that's going to cover at least a year of expenses should you be forced to retire earlier than you expected.
And don't forget to keep learning new skills, keep leveling up those old skills, stay competitive in your job market. You know, I've talked about this a lot in past episodes, but ageism in the workplace is a real problem. We have to make sure though, at least we're not perpetuating the myth that "you can't teach an old dog new tricks". Be willing to adapt. Be willing to bring your breadth of hard-earned experience and wisdom to the table. And in the meantime, prepare yourself to be able to pivot quickly should you be forced to retire sooner than expected.
Now, myth #4 is the idea that Medicare is going to cover all your medical expenses. Yes, of course, Medicare is a lifesaver, but we all know it's not a magic wand. It's only going to cover about 80% of your medical expenses. That sounds great until you realize that 20% is going to be on you. And that 20% adds up faster than you think. It adds up in the form of expensive prescriptions and surgeries and long-term care. The average couple retiring today is going to spend over $300,000 on healthcare costs in retirement. That includes premiums and out-of-pocket expenses, in-home or nursing facility care.
So we have to prepare for this reality. How do you do this? Well, you can consider investing in supplemental insurance, but I highly recommend contributing to an HSA if you're eligible. As we talked about, it's a great way to allow you to save specifically for healthcare costs while enjoying tax advantages. Any unused funds roll over year to year, so the money in the account is going to stay invested. You can keep growing it over time throughout your retirement. And given that healthcare costs are such a major expense in retirement, having that dedicated fund to offset the cost is huge. And as I said before, HSA's can function as an extra retirement account once you turn 65. It's just like having an IRA. So it's a great tool. I highly recommend it.
But there's another way I want you to think about medical costs and retirement. What if you could avoid many of the costs altogether by staying healthier longer? Boosting your healthspan, the number of years you stay healthy, can prevent most age-related diseases, can keep you off medications, and help you avoid long-term care. When you exercise regularly, eat right, get good sleep, and manage your stress, you can save tens of thousands of dollars while at the same time improve your quality of life. Not to mention you're going to enjoy more energy, mobility, vitality in those retirement years. In addition to investing in an HSA, I highly recommend you invest in your health. Invest in a coach who can help you level-up your healthspan. That's what I do here at Next Act Ninjas. The return on your investment is going to be massive.
Now, myth #5 is this idea that downsizing is going to solve everything. It sounds like the perfect plan, right? You sell the big house, you buy something smaller, and you pocket the difference. Simple, right? But the problem is the cost of selling, moving, buying, or even renting a new place can be substantial. Plus, smaller homes don't always mean fewer expenses. Maintenance, HOA fees, property taxes, they all add up, don't they?
My clients, Jim and Linda, were planning to sell their suburban home and downsize to a condo near a mountain resort. When they realized that the HOA fees were going to be higher than their current property taxes, it was going to eat into any savings they were going to get. So while they liked the idea of a lower maintenance home and the resort life, the financial savings were going to be much less than they expected. And of course they knew they were also going to regret giving up that space they had for hosting family visits. So they were giving up a lot.
I think this is common. Many people think that downsizing is their best option. It's the best way to free up equity that they have in retirement. But it's not always the case. In fact, sometimes the downsize ends up costing you more. But the good news is there are a number of alternatives to downsizing that could improve your financial situation. For example, instead of automatically opting for a smaller home, maybe you're just moving to a location with a lower cost of living, or you're moving to a state with more favorable tax laws for retirees. A strategic relocation like that can improve your financial situation without necessarily meaning you're moving to a smaller home.
And if you prefer to stay right where you are, you might also consider taking out a reverse mortgage. If you have significant equity in your home, a reverse mortgage can provide you with monthly income and allow you to retain ownership. You could also rent out a portion of your home. This can be a basement apartment, a spare room, a converted garage. I think house hacking is a great way to generate consistent income while allowing you to stay in your current home. And if local regulations allow, you can use platforms like Airbnb to book short-term renters, or maybe you team up with another retiree in a co-housing arrangement to share the costs and create community. The point is you have options. Moving to a smaller home won't necessarily improve your financial situation. Think through all your options.
Myth #6, It's too late, or I'm too old to catch up on savings. Does that sound familiar? But let me tell you, it's never too late. Retirement savings isn't just about how much you can save, but also it's about adopting the mindset that every step forward counts. Think of it as building momentum. Each action you take compounds into a brighter future.
Even if you're within 5 to 10 years of retirement, there's still plenty of time to make a difference. Maximize your retirement contributions, cut unnecessary expenses, even consider part-time work. Every dollar counts and every small step is going to bring you closer to financial security. Also keep in mind that your investments are going to keep growing throughout those retirement years.
So here's some inspiration. I knew this couple who started saving aggressively at the age of 58. Seems late, right? But they found money to invest by doing a few simple things. They continued to drive their fully paid off cars rather than upgrade to new models. That saved them about $800 a month. They did more local travel, taking more road trips rather than flying to exotic locations. That saved them another $700 a month. They cooked nice meals at home, dined out less. When On the rare occasion that they did dine out, they avoided extras like fancy cocktails or appetizers and desserts. And this saved them about $250 per month, not to mention improved their health, because they weren't eating all that junk. And they reduced spending in other areas as well. They gave up certain spontaneous online shopping and streaming services, you know how those things can add up.
So in total, they made a few simple changes that freed up about $1,800 every month, which they invested in one of their 401ks and a Roth IRA. And those things grew at about 7% per year. Over 10 years, they accumulated more than $300,000 to add to their retirement savings. That 10 years of discipline increased their net worth by about 30%. And of course, it greatly improved their sense of security. Better yet, they felt empowered knowing that they were taking control of their future. I love stories like that because they prove that it's not too late to rewrite your financial story.
So I want to encourage you to take action today. Take a little bit of time to evaluate your budget and identify areas where you can reduce spending, even if you don't think you're overspending. You'll be surprised at how fast $50 here or $20 there adds up. If necessary, work with a financial advisor to create a catch-up strategy. Start small if you have to, but start today. Honestly, Your future self will thank you.
And that last myth, myth #7, is this idea that you can wing it. This I think, is the myth of all myths. This idea, "I'll figure it out as I go." But let me be honest, retirement is not the time to wing it. It's the culmination of all your hard work, all your discipline, all the planning you've done throughout your life. Would you embark on a trip around the world without a plan? Of course not. Think of your retirement as that journey. It's going to take a bit of planning.
Having a strategy is not just smart, it's liberating. It's going to give you the confidence to make better decisions. It's going to give you more flexibility to adjust to life's surprises. And it's going to give you peace of mind to truly enjoy your golden years. Without a plan, you're at the mercy of unexpected expenses, market downturns, outliving your savings. A smart plan is your ticket to freedom. It's going to allow you to say yes to more things that you love to do - travel, hobbies, time with family - and you're not going to have fear of running out of money. And that's going to allow you to design a life that you are excited to live. It's going to allow you to design your best Next Act.
So after this episode, I challenge you, sit down and map out just a basic plan. Start by doing each of the action steps we talked about today. Look at your social security statement. Look at your 401k. List out your expected income sources and expenses. See where the gaps are. And just take one step to address them. Maybe you increase your 401k distributions if you can. You contribute to an HSA if you have one. You could build an emergency fund. Level up your healthspan, hire a coach. Don't assume that you'll be able to work forever, that you'll be able to downsize to free up cash, or that you can just wing it. You have to have a solid plan, and that plan starts today.
The road to retirement doesn't have to be scary or uncertain. Armed with bit of knowledge and a solid plan, you're going to be able to create your Next Act with confidence. Now, if you could use some coaching to get crystal clear on what that Next Act looks like, reach out. I'd love to help you navigate this exciting journey. Until next time, live well, love more, age less, my friends.