CHICAGO -- Fretting is the new normal for retirement.
Too little is in savings, too many retire without financial security and we may need to work longer to achieve it -- assuming they can hang onto their jobs or find new ones.
The old rules on retirement continue to be rewritten; for instance, only 15 percent of private-sector employees still have traditional pensions.
"Things are changing so rapidly these days, primarily because people are forced to be more in the driver's seat for their retirement," said Jean Setzfand, director of financial security for AARP. "That's why it's important to dispel these myths."
Here's a look at some retiree money myths and the facts behind them:
● Medicare covers all important health-care costs.
Medicare covers a portion, but far from all, of medical expenses for a person who is at least 65.
The program was created to pay for major health care needs, not routine dental or eye care, many prescription drugs and home-health or nursing home care.
The average person 65 or older spent $4,846 on health care, including health insurance, drugs and medical services, in 2009, according to a survey by the federal Bureau of Labor Statistics.
Health-care costs rose 48 percent from 2000-10, nearly double the 26 percent increase in the Consumer Price Index.
Retirees should consider purchasing a Medicare Supplement (Medigap) policy for roughly $200 a month.
And preretirees should consider buying long-term care insurance in their 50s or early 60s.
● Retirees spend much less.
The old stereotype of seniors spending quiet time on the back deck has been replaced by a far more active lifestyle.
And that spending in retirement can rise because of travel, hobbies and other leisure activities in the early years of retirement.
About half of retirees surveyed by the Employee Benefit Research Institute in Washington said that in the early years of retirement, they spend as much as or more than before they retired.
Many financial advisers frown on the traditional rule of thumb that retirees need 70 to 80 percent of preretirement income to maintain their lifestyles. To be safe, they say, retirees should plan on needing 100 percent.
Experts recommend analyzing retirement spending expectations. Will a home mortgage and any loans for children's college tuition be paid off? Other major considerations are income, sales, and property taxes.
● Bonds are the best place for money in retirement.
Although retirees need to protect their savings, there is such a thing as playing it too safe. Bonds aren't a great place to stash cash for the long haul. And their outlook has soured lately.
The weak forecast is linked to the near certainty that short-term interest rates, which are currently near historical lows, and inflation both will increase.
When the Federal Reserve inevitably raises rates, prices for bonds with locked-in rates will drop. That's because investors will be able to buy newly issued bonds paying higher interest. And inflation will erode the value of the bond income that retirees may be counting on.
Many investment advisers recommend seeking more income by investing instead in companies such as Pitney Bowes or Clorox with histories of increasing their dividends. A list of the 42 large-cap companies that have increased dividend payments for at least 25 years -- the so-called Dividend Aristocrats within the Standard & Poor's 500 -- can be found at standardandpoors.com.
If inflation returns to its historical average of 3 percent or more, prices will double during the course of a 25-year retirement.
"The inflation threat to retirees is serious," said Mike Martin, president of Financial Advantage, a Columbia, Md., financial services business. "The stocks of solid, well-capitalized businesses that can grow can be the best defense for retirees."
● Social Security is going away.
Although some fixes need to be made, workers and retirees shouldn't worry about losing this key part of retirement security.
The Social Security program is projected to run out of money by 2037 unless changes are made. But the payroll taxes that fund the program will be enough by themselves to pay 75 to 80 percent of benefits.
That means the worst-case scenario probably is a reduction in benefits starting a quarter-century or so from now. And it can be prevented if Congress raises the retirement age or taxes on high-income earners, which are among measures under consideration.
Social Security was never intended to fund a comfortable retirement by itself, as evidenced by today's average check of just $1,072 a month.
Those really concerned about the prospect of reduced benefits can take steps now to address it. Besides saving more, they can consider what cuts would be necessary to live on less and how they might replace the lost income, John Diehl, senior vice president at The Hartford Financial Services Group, advised.
● Retirees will be in lower tax brackets.
Federal income tax rates, now low by historic standards, are likely to increase as the government addresses its nearly $14 trillion debt. And states are suffering similarly. Many are expected to follow the lead of Illinois, which raised its income tax rate this year to 5 percent from 3 percent.
Another factor that's often overlooked is the impact of paying off a mortgage. Elimination of that debt removes the tax deduction for interest payments, which will in turn increase taxable income.
Thus the combination of income from Social Security, pensions, 401(k)s, IRAs, and taxable investments may leave a retiree in the same bracket or put him or her into a higher one.