Common Retirement Myths You Shouldn’t Believe

The truth is, in retirement you're going to need a steady stream of income. It can come from lots of places: savings accounts, retirement accounts, stock market investments, pensions, annuities and Social Security—you name it. It may seem overwhelming, but what's also true is retirement planning is easier when you have a clear understanding of the facts. 

There's a lot of misinformation and concern out there about saving for retirement. In fact, most Americans say they’re afraid they won’t have enough money to retire and are concerned about managing debt. 

Learning to identify the most common retirement myths can help you plan well and feel more confident in your golden years.

Myth 1: You can’t contribute to an IRA if you have a retirement plan through your employer.

Fact: Having an employer-sponsored retirement plan doesn’t stop you from having a Traditional IRA or Roth IRA. 

Investing strategically in retirement accounts with different tax treatments can be a smart move. Using multiple types of savings options may help you better manage your taxes and have more retirement income. Both types of individual retirement accounts (IRAs) have tax benefits that could potentially boost your nest egg.

Contributions to a traditional IRA may be deductible on your federal tax return. Your deduction may be limited if you or your spouse are covered by a retirement plan at work and if your income exceeds certain levels. Look at how different situations could affect what your deduction would be for 2025, according to the Internal Revenue Service (IRS).

If you’re single and covered by a retirement plan at work, find deduction information based on your modified adjusted gross income (MAGI) below:

• $79,000 or less: You can take a full deduction up to the amount of your contribution limit.
• More than $79,000 but less than $89,000: You can take a partial deduction.
• $89,000 or more: You’re not eligible for a deduction.

 

If you’re married and filing jointly and you’re covered by a retirement plan at work, here’s the deduction information based on your MAGI:

 

• $126,000 or less: You can take a full deduction up to the amount of your contribution limit.
• More than $126,000 but less than $146,000: You can take a partial deduction.
• $146,000 or more: You’re not eligible for a deduction.

 

If you’re married and filing jointly but aren’t covered by a retirement plan at work while your spouse is, here’s the deduction information based on your MAGI:

 

• $236,000 or less: You can take a full deduction up to the amount of your contribution limit.
• More than $236,000 but less than $246,000: You can take a partial deduction.
• $246,000 or more: You’re not eligible for a deduction.

 

When you turn 50, you’ll be eligible to make catch-up contributions for your employer-sponsored retirement plans and your IRA plans. The maximum allowable amount typically increases to account for inflation. Check the IRS website for current information.

Roth IRA contributions aren’t deductible, so being covered by a retirement plan at work has no effect on your retirement.

Myth 2: You can’t access the money in your retirement savings plan before you retire.

Fact: It’s possible to withdraw money early, but it’s not advisable because you’ll likely owe fees and will fall behind in saving for retirement.

It's typically best to leave the funds in your 401(k)s, IRAs or other retirement funds untouched until you retire. Otherwise, you might have to pay a penalty. If you need to withdraw from your retirement funds before then to pay for things like medical expenses or college tuition (for you, your spouse or a dependent), some employer-sponsored retirement plans will allow you to take a loan and/or make a hardship withdrawal without penalty.

You may have to pay taxes and penalties on earnings withdrawn unless an early withdrawal exception applies. For instance, a hardship withdrawal from a 401(k) plan before the age of 59½ may be subject to a 10% tax on top of your normal tax rate on previously untaxed dollars. 

If you have an IRA outside of your workplace, early withdrawals typically will result in a 10% penalty. This is meant to encourage you to leave the money alone until you retire. Certain circumstances do allow for penalty-free IRA withdrawals. Examples may include paying for a child’s college tuition or for unreimbursed medical expenses.

Myth 3: Medicare will cover all my health care expenses.

Fact: Medicare covers some health care costs—but not all medical expenses—for people ages 65 and older.

Medicare Part A covers hospital stays while Part B handles doctor visits and outpatient care. Even with this coverage, you’ll still need to pay for things like dental care, vision services, hearing aids and most prescription drugs—unless you have additional coverage through Medicare Part D or a Medicare Advantage plan. According to a 2024 Kaiser Family Foundation (KFF) report, Medicare beneficiaries spend an average of $7,000 annually on out-of-pocket medical costs. This includes premiums, deductibles, copayments and costs for services Medicare doesn’t cover.

As you age, you may also find that you need more help doing everyday things. Medicare may cover an in-home health care aide if it’s medically necessary. If you need to move into an assisted living facility, those costs most likely won’t be covered by Medicare. A 2023 Harvard study found that only about 13% of seniors who need help with daily care—like bathing and managing medicine—can afford an assisted living facility in their area. Only about 14% of seniors who live alone can afford the cost of a daily home health aide.

The Employee Benefit Research Institute estimated that in 2022, a 65-year-old man would’ve needed $166,000 and a 65-year-old woman would’ve needed $197,000 to have a 90% chance of being able to cover health care expenses throughout their retirement years. This data doesn’t include savings that may be needed to cover long-term care expenses. 

With the average U.S. life expectancy at 77.5, according to 2022 data from the Centers for Disease Control and Prevention (CDC), you can expect to plan for many years of health care costs. So, it's important not to rely on Medicare alone.

Myth 4: Social Security will cover my needs.

Fact: While Social Security provides important retirement income, it typically replaces only about 40% of your pre-retirement earnings.

Many people believe Social Security benefits will fully cover their retirement needs, but this isn’t the case. The average monthly Social Security benefit in 2024 was roughly $1,900. That’s about $22,800 per year, which is likely not enough money to maintain your current lifestyle in retirement.

Recent changes have helped protect Social Security benefits for certain groups. For instance, there’s now a new cost-of-living adjustment (COLA) formula that helps benefits keep pace with inflation. But even with these improvements, you’ll likely need additional sources of income to live comfortably in retirement.

Think of Social Security as just one piece of your retirement puzzle. To create a complete picture, consider building your retirement income from multiple sources like:

• your workplace retirement plan
• personal savings and investments
• Individual Retirement Accounts (IRAs)
• other retirement savings options

Starting to save early—even small amounts—can make a big difference in your retirement security. The earlier you begin planning for income beyond Social Security, the more options you’ll have for a comfortable retirement.

Myth 5: I can retire whenever I want to.

Fact: You can certainly choose to stop working whenever you want, but how old you are when you retire can affect your benefits and long-term financial security.

The timing of your retirement matters more than you might think. Your age plays a large role in determining your Social Security benefits and access to other retirement funds. For instance, if you start taking Social Security at age 62 (the earliest possible age) instead of waiting until your full retirement age, your monthly benefits could be reduced by up to 30%.

Here’s what to consider when planning out your retirement:

• Your full retirement age depends on when you were born.
• Taking Social Security early means permanently reduced benefits.
• Most retirement accounts charge a 10% penalty for withdrawals before age 59½.
• Waiting until age 70 to claim Social Security can increase your benefit by up to 24%.

 

The job market can also affect your retirement plans. Losing a job in your late 50s or early 60s might force you to dip into retirement savings earlier than planned. A 2023 Federal Reserve study found that about 1 in 3 workers had to retire earlier than expected due to job losses or health issues. That’s why it’s smart to build some flexibility into your retirement timeline and maintain an emergency fund.

The best retirement age for you depends on your health, savings, career and family situation. Planning ahead gives you more control over when you can comfortably retire. Think about connecting with a financial advisor to review your situation so you can make a retirement plan that’s right for you.

Myth 6: My child will attend college before I retire, so I should save for college costs before retirement.

Fact: Saving for retirement is more important than saving for your child’s college tuition because you must be able to support yourself as you age.

If you don’t save for your own retirement, you may become a financial burden on your children in your later years. Take care of yourself first by building your retirement savings. There are many ways to finance an education for your child without taking away from your own retirement savings goals. Remember, there are student loans available for attending college, but there are no retirement loans.

It’s possible to save for a child’s college education and your retirement at the same time, but aim to prioritize your retirement savings.

Navy Federal Credit Union is here to help you plan for retirement

For more information about retirement planning, reach out to Navy Federal Investment Services. Advisors are available in more than 150 Navy Federal branches. Find an advisor near you or call 877-221-8108 to set up an appointment.  The initial consultation is offered at no cost to Navy Federal members.