5 Retirement Myths That Can Leave Americans Hundreds of Thousands Short

Retirement plans can look solid on paper, but the real-world price tag often tells a different story.

Financial experts say several widely held assumptions about retirement can create major shortfalls between what people expect to spend and what they actually need.

Below are five common myths that can leave retirees underfunded.

1. Believing Spending Automatically Drops

Many people assume expenses will fall once they stop working. In practice, retirees often just redirect their spending, according to Andrew Gosselin, a certified public accountant at Save My Cent.

“Housing costs continue to be a significant expense, and so do rising healthcare costs,” he said, noting that hobbies and travel can add up as well.

Jonathan Ness, a CPA and founder of Know Money, Yes Money, said many people fail to set aside enough for medical bills. Unexpected costs can also appear, he said, such as replacing a broken air conditioner or buying another car.

John Enwere, CEO of Caringene, said the idea that costs always decline is especially misleading when it comes to home care, where “the reverse seems to be true.”

2. Underestimating Healthcare and Long-Term Care

Retirement estimates often miss how fast healthcare spending can rise over time.

Part of the problem, Enwere said, is that healthier retirees may assume they are in better condition than they really are. In reality, many people eventually need some level of support, whether that means transportation, higher medication expenses, or assisted living later on.

Ness said it is reasonable to assume 3% inflation in general, but healthcare is different. “For healthcare costs, I'd double this inflation rate, to be a little safer,” he said, adding that medical, housing, and college costs have grown faster than inflation over the past several decades.

3. Counting on Social Security to Do Too Much

Many workers also overestimate how much of retirement Social Security can fund.

“Social Security was designed to complement retirement income, not to replace an individual's working wage,” Gosselin explained.

He added that retirees who expect Social Security to be their only source of income will likely face a lower standard of living.

Ness also warned younger workers not to assume the program will remain unchanged indefinitely.

4. Forgetting About Longevity and Market Swings

People are living longer than earlier generations, which means retirement savings must stretch further. At the same time, investments rarely move in the steady upward line that many planning tools assume.

“Most projections of retirement income assume consistent, above average investment returns. However, this rarely occurs,” Gosselin said.

Those optimistic estimates often ignore volatility and extended downturns, he said, which can force retirees to cut spending far sooner than expected.

5. Entering Retirement Still in Debt

Debt can make retirement much more costly than many people expect. Ness said carrying debt into retirement sharply raises the savings needed to live comfortably.

For example, he explained, a monthly mortgage payment of $2,000 in a 15% bracket requires $2,353 of income before taxes. Annualized and multiplied by 25, that adds up to $706,000 more needed for retirement.

He said retirees should try to eliminate as much debt as possible before leaving the workforce.

In the end, experts say retirement plans should be tested against these realities now, before they become expensive surprises later.