The Amazing Truths
About Retirement

If you are one of the four million baby boomers who turned 50 in 1996 or the seventy-three million more who will turn 50 in the years to come, you may have begun to think about what life will be like after work.

But retirement as it was in our parents' time may be obsolete because of changes in the economy, society and the demographics of our country.

Here are some of the myths, and the amazing truths, about future retirement. 

MYTH #1: You'll need retirement savings to last 15 or 20 years.

The average life span is 78, but one in three baby boomers will reach at least age 85, and most of them will be women.

Seven out of ten baby-boomer women will outlive their husbands. These numbers will probably increase dramatically in the future.

The Amazing Truth: These days, you must plan your resources to get you to age 100 or beyond.

MYTH #2: You'll be in a lower tax bracket when you retire.

When you retire, it is possible you may drop into a lower tax bracket, but your effective tax rate - the actual fraction of your income that IRS takes - may not.

As you lose deductions and exemptions, and as state and local taxes continue their climb, you may actually pay a greater percentage ofyour income for federal, state and local taxes after retiring than you did while you were working.

The Amazing Truth: You'll probably pay a higher percentage of your income to taxes after retirement than before.

MYTH #3: You'll have more for your retirement by staying with one employer for your entire career.

If you change jobs often, vesting requirements may axe your pension plan funds. But if you can raise your salary by changing employers more often, you will boost your benefit from any pension plan that you are vested in.

If a new job pays 5% to 10% more and has good benefits, you're probably better off switching jobs, but be sure to stash some of that extra income into a 401(k) plan or an IRA.

The Amazing Truth: You shouldn't stay in the wrong job for the right pension.

MYTH #4: When your retire, you should preserve your capital and live on the income your investments generate.

Think again. Your main goal should be to preserve your spending power, and inflation can erode even a good sized nest egg.

In the early years of retirement continue to build wealth by working part time, and be sure to include equities (stocks) for growth in your investment portfolio. When you stop working completely, you'll have more dollars to spend.

The Amazing Truth: It isn't wise to stop earning or saving just because you are retired.

MYTH #5: Most people work to live, not live to work.

"Work is the important thing. The purpose of leisure time is to recharge people's batteries so they can do a better job," says Tom, a 39-year-old entrepreneur. A study by Internal Research Associates showed that in the United States 39 percent of the respondents agreed with him.

"No, leisure is more important. The reason we work is to make it possible to have the leisure time to enjoy life." Thirty-seven percent of us agree with this statement.

Twenty percent said work and leisure are of equal importance.

The Amazing Truth: Integrating leisure with work and work with leisure produces the most satisfaction.

Myth #6: After retirement, you won't work again.

Three-fifths of Americans plan to work part time during retirement to maintain their standard of living. There are several reasons you will want to consider working after you retire:

• Staying mentally alert and challenged is important to improving quality of life and increasing longevity.
  
  
• You have more options for a part time, flex time involvement.
  
  

• Staying involved in the business world, even in a limited way, allows for easier re-entry, should you desire to do so.

The Amazing Truth: Before you retire, it is important to develop interests and hobbies and skills that you might need to call on for income later.

This article was excerpted from the book Your Next Fifty Years: A Completely New Way to Look at How, When, and If You Should Retire by Ginita Wall, CPA, CFP and Victoria Collins, CFP, Ph.D