The lies we tell ourselves can derail our journey to financial freedom

The worst lies are the ones we tell ourselves. It’s not that we intend to deceive ourselves. Sometimes we all have an unhealthy distortion of reality, especially when it comes to planning for retirement.

Why? Perhaps it’s because planning for retirement involves risks, and risks entail uncertainty. Uncertainty often leads to fear. When we have big choices to make, fear undermines our brain’s ability to process higher level, rational thoughts. When we’re acting out of fear, we don’t always see the situation clearly or adequately assess risk. When we are afraid, usually the easiest move is to do nothing. The path of least resistance is well worn.

“There’s a big disconnect between what people say they will do, or might do, versus what people are doing,” says Cary Funk, senior researcher at the Pew Institute. For example, in a survey conducted by the Employee Benefit Research Institute (EBRI) in January 2013, 36 percent of the surveyed workers 55 and older reported having less than $10,000 in savings and investments. According to the National Institute on Retirement Security, one-third of all people between the ages of 55 and 64 haven’t saved anything for retirement.

To compensate for their lack of retirement funds, 69 percent of the respondents said they plan to find paid employment once they retired from their primary job. Yet EBRI found that only 27 percent of surveyed retirees had ever worked for pay while in retirement. A similar study published in September 2012 by the Pew Research Center found that only 12 percent of retirees are earning a salary.

Saving for retirement is one of our biggest financial challenges. According to EBRI, the percentage of workers currently saving for retirement has continued to decline to 57 percent from 65 percent as recorded in 2009. When we prioritize our financial needs and wants, retirement never wins on urgency, and accordingly, is easy to put off. We tend to think up excuses so that we can avoid facing the long, difficult task of saving for retirement. When we finally tell ourselves the truth, suddenly it becomes reality. That means we have to do something about it, and that is the scary part.

We have compiled some of the lies people tell themselves that prevent them from reaching a comfortable retirement.

I can always save later, so why start now? If you start contributing to a retirement plan at age 25, you will only have to contribute slightly less than $6,500 a year (assuming a 6 percent growth rate) to have $1 million by age 65. But if you wait until age 45 to start contributing, you’ll have to contribute $28,185 a year to reach your retirement goal of $1 million at age 65. Can you afford to do that?

I can live on 70 to 80 percent of my pre-retirement income. Ask yourself: Will you be able to live the life that you want in retirement on 20 to 30 percent less income than you have right now? According to research published last year by EBRI, 55 percent of surveyed retirees said they were living in retirement on 95 percent or more of their pre-retirement income. To prepare for your retirement, you should make a detailed projection of spending in retirement. Start with your current annual expenditures, subtract expenses that you will not likely incur in retirement, and add expenditures that you will likely sustain, such as additional healthcare costs.

I won’t need long-term care. A study published last year in the health journal Inquiry by the Lewin Group, along with professors at Penn State University and Georgetown University, projects that 65 percent of all people age 65 and older will at some point in the future spend some time in their homes requiring long-term care. And who will pay for that care? The authors estimate that about 45 percent of those expenses will be paid out of pocket. Don’t count on Medicare. It is not designed to cover long-term care needs. One possible solution is to buy long-term care insurance. In any event, you should factor the need for long-term care into your retirement planning.

I can rely on Social Security. About one-third of households live on Social Security alone, according to the Center for Retirement Research at Boston College. The average monthly Social Security check, according to Social Security, is $1,269 or $15,228 a year. Retirees on Medicare have a minimum of $105 deducted from their benefits to pay for Medicare Part B, reducing Social Security take-home to $13,968 a year. That is near poverty-level income.

So what can you do to prepare for retirement? First set a goal and start planning. Start with the end in mind. Determine what you will need to retire, and compare it to what you have saved to see what you will need to save. Second, decide what retirement means to you. What kind of lifestyle do you want to retire to? What do you want to do? Where do you want to live? Third, manage your debt. Ideally, you would want to retire with as little debt as possible. Fourth, hire a qualified financial advisor who will develop a personalized, written investment plan. Finally, be prepared for the unexpected. Start an emergency fund if you do not already have one. Review your needs for life, health, long-term care and disability insurance with your financial advisor.

It is not easy to plan for retirement. But if you can overcome the fears that prevent you from planning, you will be on a better path toward financial freedom.