Dave Ramsey has a major caveat about retirement, 401(k), Social Security

People often encounter financial advice from a wide range of sources about planning for retirement, maximizing their Social Security benefits, and investing in employer-sponsored 401(k)s.

But personal finance author and radio host Dave Ramsey has been clear about how much of the information people get on these topics isn’t worth paying attention to and is sometimes blatantly misleading.

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To make sure you’re planning smart and developing a successful strategy, Ramsey suggests learning the difference between fact and fiction when it comes to retirement advice. And name a number of them.

One involves the question of what role Social Security checks play in a person’s retirement income. Many people believe that once they reach retirement age, their government checks will be enough money to live on.

Ramsey explains that people who plan to retire in the future often have an exaggerated expectation of how much purchasing power the money they collect from Social Security will have.

And for those retiring after 2033—unless Congressional legislation passes—Social Security’s trust fund reserves will be depleted, and existing money available will only be enough to pay 79 percent of scheduled benefits.

Dave Ramsey explains other retirement misinformation people should dismiss

Another big misunderstanding Ramsey says many people get wrong is how much to invest in 401(k)s and other holdings. Simply put, investing in your company’s match percentage is a great place to start, but it’s only the first step.

Ramsey believes that 15% of a person’s income should be invested in retirement. So that means you should start with your company’s 401(k) matching amount and then invest even more.

But your retirement investments beyond your 401(k) should be in a Roth IRA, Ramsey says. Those contributions are made with after-tax dollars, and the earnings on them grow tax-free. This can help boost your savings, especially if you’re in a higher tax bracket when you retire.

More about Dave Ramsey

• Ramsey explains a major key to early retirement
• Dave Ramsey discusses a big money mistake to avoid
• Ramsey offers important mortgage advice

Another myth people cling to is that they will continue to work in retirement. Ramsey explains that — while the truth is that the vast majority of retirees don’t work past retirement age — if you’re going to work in retirement, it should be because you want to, not because you have to.

A doctor talks to a Medicare patient at a hospital. Dave Ramsey explains that many retirees overestimate how much of their health care costs will be covered by Medicare.

Image source: Shutterstock

Ramsey makes an important point about Medicare

There is good news and bad news for retirees about Medicare. What it does well is provide retirees with affordable health insurance for doctor visits, medications and hospitalization.

But it doesn’t cover deductible costs, copays or long-term care in an assisted-living facility that lasts more than 100 days, Ramsey says.

“This is really important because the biggest health expense in retirement is long-term care,” Ramsey wrote.

So Ramsey suggests getting long-term care insurance until age 60 and building up your retirement savings for that purpose. One tool for this is an insurance policy with a health savings account (HSA). The money invested in them grows tax-free—and you pay no taxes on the money you take out of an HSA in retirement to pay for medical costs.

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Ramsey also clarifies his thoughts on another retirement fallacy that many people believe: that it might be too late to save for retirement. By investing a significant percentage of your income for retirement, even into your 50s or later, you can live a much better life in retirement than if you neglected the opportunity to do so.

“It doesn’t matter how old you are or how much you’ve saved so far, you can still do something,” Ramsey wrote. “Don’t waste another minute counting on the government to take care of you for the next few years.”

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