Retirement planning is easier when you have a clear understanding of the facts. Don’t let these common misconceptions lead you astray.

Myth 1: You can’t contribute to an IRA if you have a retirement plan at work.

Reality: Investing strategically in accounts with different tax treatments can be a smart move since it may help you manage your taxes during retirement. Having an employer-sponsored retirement plan doesn’t stop you from opening and contributing to a Traditional or Roth IRA.

In addition, contributions to a Traditional IRA may be tax deductible. However, your deduction may be limited if you or your spouse are covered by a retirement plan at work and your income exceeds certain levels.

If you're single and covered by a retirement plan at work and your modified adjusted gross income is:

  • $64,000 or less, then you can take a full deduction up to the amount of your contribution limit
  • more than $64,000 but less than $74,000, then you can take a partial deduction
  • $74,000 or more, then you’re not eligible for a deduction

If you’re married and covered by a retirement plan at work and your modified adjusted gross income is:

  • $193,000 or less, then you can take a full deduction up to the amout of your contribution limit 
  • more than $193,000 but less than $203,000, then you can take a partial deduction
  • $203,000 or more, then you’re not eligible for a deduction

If you’re married and not covered by a retirement plan at work, but your spouse is, and your modified adjusted gross income is:

  • $193,000 or less, then you can take a full deduction up to the amount of your contribution limit
  • more than $193,000 but less than $203,000, then you can take a partial deduction
  • $203,000 or more, then you’re not eligible for a deduction

Myth 2: There’s no hope of accessing your money before retirement when you contribute to a retirement plan.

Reality: Because retirement plans were designed to help you save for retirement, it’s best to leave retirement funds untouched until you retire. However, if you need access to your funds before you retire, most employer-sponsored retirement plans will allow you to take a loan and/or make a hardship withdrawal. However, you may be required to pay taxes and penalties on earnings withdrawn from the IRA, unless an early withdrawal exception applies.

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

Reality: Medicare covers some, but not all, medical costs for those ages 65 and older. Households on Medicare spend an average of 14 percent of their total household budgets on health care expenses, including health insurance premiums. The Employee Benefit Research Institute estimated that in 2017, a 65-year-old man would have needed $131,000 and a 65-year-old woman would have needed $147,000 to each have a 90 percent chance of being able to cover health care expenses throughout their retirement years. However, this stat doesn’t include savings that may be needed to cover long-term care expenses.

Myth 4: Since my child will attend college before I retire, I should save for college costs before retirement.

Reality: An example to explain this would be, when you’re on an airplane, the flight attendant tells you that in case of loss of cabin pressure, you should secure your own oxygen mask before assisting your child. The reason: you’ll be no good to your child if you pass out. The same principle applies here. If you don’t save for your own retirement, you may become a financial burden on your child in your later years. So take care of yourself first by building your retirement savings. At the same time, there are many alternatives to help finance an education for your child.

If you’d like more information about retirement planning, check out MakingCents by Navy Federal Credit Union, where you’ll find articles, useful calculators and self-paced learning modules to help you get a clear understanding about planning for your financial future.