The Biggest Lie People Tell Themselves About Retirement (And What the Wealthy Do Instead)

After a lifetime of hard work, the last thing you want to do is struggle during retirement, right? And if you play your cards right, you won’t have to.

But you should know that there’s one huge retirement lie wealthy seniors refuse to buy into. And knowing what that lie entails could spare you a world of financial stress.

Don’t assume that Social Security will be enough

Many people tell themselves that once they retire, they’ll be able to live comfortably on Social Security. But that’s a joke for a couple of reasons.

First, the average monthly benefit among retired workers today is a little over $2,000. If you’re someone who can live on $3,000 a month today, then you may be okay living on $2,000 a month in retirement. If not, consider this a serious wakeup call.

Also, the more money you earn, the smaller a percentage of your paycheck Social Security will replace. That’s because the program has a maximum monthly benefit it pays retirees.

If you earn an average wage, Social Security might take the place of about 40% of what you’re used to making. But if you’re a higher earner, you may find that Social Security replaces a very small portion of your income. That means you’re going to need more than just your monthly benefits to manage your bills without having to pinch pennies or seriously scale back your lifestyle.

You don’t want to retire on Social Security alone

If you want to enjoy your senior years to the fullest, there’s a very simple path toward that goal — save aggressively during your working years, and invest your money wisely. Wealthy retirees don’t spend their careers banking on Social Security. Instead, they contribute steadily to a retirement account and invest their portfolios so their money is able to grow over time.

What does that mean? When you’re building wealth for retirement, it’s important to load up on assets that can outpace inflation over time. For the most part, that means stocks.

Some people are content to put their money into broad market ETFs. You could go that route to simplify the process. But if you’re able to assemble a diverse mix of stocks for your portfolio, you may find that you’re able to beat the stock market broadly and generate even stronger returns for your portfolio.

Meanwhile, once you get to retirement, it’s important to maintain a portfolio that’s capable of generating steady income. To that end, your options include:

• Broad market and/or dividend ETFs
• Individual high-yielding dividend stocks
• Real estate investment trusts, which have to pay at least 90% of their taxable income to shareholders as dividends

To be clear, you shouldn’t keep your entire portfolio in stocks once you’re retired. It’s a good idea to hold some bonds for stability and predictable income, as well as some cash to tide yourself over in the event of a stock market downturn.

An annuity could be another worthwhile investment that leads to a financially sound retirement. The ongoing paychecks you get from an annuity, combined with regular Social Security benefits and an income-producing portfolio, could leave you with enough money to do all of the things you’ve always dreamed of during your senior years.

One of the biggest mistakes people make in the context of retirement planning is assuming they’ll get by on Social Security alone. It’s okay to factor those monthly benefits into your retirement income. But make sure you have other assets and investments on top of Social Security if you want to be able to enjoy your golden years without worry.