Great Expectations: 5 Ways Retirees Fool Themselves
Boomers are entering their retirement years with a lot of assumptions – some well-founded, others not so much. But successful retirements are not built on guess work, historical fallacies, or hope. And you know what they say about the word “assume.” Here are our top 5 ways retirees fool themselves.
- “I’ll definitely be working past the age of 65.” – To maintain life-long financial solvency, yes, you might have to work past the age of 65, but the real question is: will you be able to? A survey from Northwestern Mutual reported that while 4/10 Americans expect to work into their 70s, the average retirement age is actually 59. In fact, the Employee Benefit Research Institute’s 2013 Retirement Confidence Survey data showed that only 25 percent of retirees actually manage to work past age 65.
- “I’ll just spend less when I retire.” – Sure, you won’t have to pay for work lunches or commuting gas, but many retirees actually spend a little more in the first few years following retirement. You’ll want to travel, spend time with the grandkids, eat at nice restaurants, and buy new plants for your landscaping projects. When you’ve got all the time in the world to pursue what you love, it can cost you. That’s not a bad thing, as long as you’re prepared.
- “If I plan for the worst, I’ll be hit by a truck tomorrow.” – Don’t laugh. We swear some of our clients believe this, because it’s the only reason we can think of why people don’t plan for the other sure thing (besides taxes). The old saying “hope for the best, but plan for the worst” is especially true when setting up retirement plans, because if one spouse dies early and the other lives into their 90s, the financial fallout on the surviving spouse can be devastating. Additionally, if accounts or assets are only held in the deceased spouse’s name (rather than both names), the surviving spouse may not have access to it until the inheritance goes through probate – though this can vary by state. Putting accounts in both names and setting up an estate plan can dodge a lot of future hardships.
- “We’re in perfect health – we’ll be fine!” – Underestimating health care costs, or expecting Medicare to cover everything, can sink your retirement funds fast if you need treatment or long-term care. And, the better your health now, the older you’ll likely live to be, which comes with its own costs. Be sure that you’ve planned for a good long life, health care expenses and all.
- “I’m going to play my retirement investments completely safe.” – While we frequently caution against having too much risk in your portfolio, there’s also a risk to playing it too safely. The safest investments are those that often have you losing money slowly – to inflation. This is where having a diversified portfolio with a few growth investments, but with most of your money in safer investments and products, can be a retirement-saver. Consult with your planner on the best combination for you that will both preserve your necessary income, and hedge against inflation and rising cost of living.
– The Savvy Investor