Don’t Make These Retirement Planning Assumptions

retirement planning
Be Sure You’re Not Falling Victim to Faulty Planning Practices

No matter how well we prepare for the future, none of us can plan perfectly for life’s unexpected curve balls. This means you’re bound to encounter a surprise financial hurdle from time to time – and they’re likely to be uncomfortable, too. If you want to set yourself up to meet life’s challenges and still maintain financial security through all phases of your life, having a smart retirement planning strategy is key. And although each person’s needs are different, you’ll want to avoid the retirement planning assumptions below in order to protect your finances – and your peace of mind, too.

Assumption #1: Your Cost of Living Will Be Cheaper in Retirement

Retirees often expect that their expenses will be lower in retirement. In reality, you have a higher chance of spending more once you retire than you did during your working years. Why? Well, not only are you still paying for necessities like monthly utilities, groceries, and possibly a mortgage or rent, but retirees have more opportunities to spend money on experiences like travel or pursuing new passions, too. Your newfound time freedom in retirement is a blessing but filling your days with things you love may come at a financial cost.

Additionally, retirees should plan to spend more on healthcare in retirement, especially as life expectancies continue to rise. So, as you consider your retirement planning savings strategy, the best course of action is to assume your expenses will stay the same. This will allow you to determine more accurately what your portfolio size should be and how much you should be saving annually. (Just don’t forget to factor in inflation!)

SEE ALSO: Retirement Planning Tips for Any Age

Assumption #2: Medicare Will Cover Your Healthcare Expenses

While Medicare covers an array of medical and prescription costs, you can’t rely on it for everything. Chances are that you’ll still have to pay out of pocket for your dental, vision, and hearing costs. And unless you purchase additional insurance for long-term care, your Medicare plan won’t cover those costs either.

So, knowing that you can’t fully rely on Medicare for healthcare expenses, it’s crucial that you have a retirement planning strategy in place to make up for where Medicare lacks. Learn what Medicare will and will not cover and familiarize yourself with the out-of-pocket liabilities you’re most likely to encounter. As you are retirement planning, consider taking advantage of a Health Savings Account (HSA) through your employer. It’s a tax-savvy way to begin preparing your finances for future healthcare costs. There’s no way to avoid expensive healthcare costs altogether, but by putting a strong retirement planning strategy in place, you can prepare to absorb those expenses without jeopardizing your financial security.

Assumption #3: You’ll Be Able to Work for as Long as You Need

Assuming that you’ll be able to continue working until you’re fully ready for retirement is dangerous. This particular retirement planning assumption leaves a lot to chance. In 2022, 40 million Americans had a disability or illness that impacted their ability to work. Even if you’re lucky enough not to experience a disability or serious illness, many older Americans struggle with finding jobs.

How can you prepare? Start by factoring in what your savings strategy should look like if you’re assuming an early retirement or lower-wage work in your later years. You can never be sure what is going to happen, so taking the steps to better prepare yourself so that you’re not overly reliant on your ability to earn money long-term can only help you in the long run.

SEE ALSO: Do You Have Clarity on Your Desired Retirement Lifestyle?

Assumption #4: Retirees Should Maintain Conservative Investment Portfolios

Many investors believe that, as you get closer to retirement, your investment strategy should become more conservative. After all, you’ll soon move from accumulating to spending and you will likely be depending on your investment portfolio for income. Nobody wants to spend all of those years working and investing only to lose it all right when they need it most due to unnecessary risks. However, retirees can’t forget that they also run the risk of outliving their money – and your retirement planning strategy must account for that, as well.

This aspect of your retirement planning efforts is about finding the right balance and risk ratio for your situation. This task can be easier said than done, so you may want to talk with a financial advisor about where your portfolio could use more or less exposure. Holding a mix of assets with varying levels of risk can go a long way in helping you continue to generate wealth and mitigate the risk of running out of money as your retirement progresses.

Concluding Thoughts on Retirement Planning Assumptions

When building any sort of financial plan, particularly around retirement planning, it’s critical that you’re aware of assumptions you may be making. This can be hard to do on your own, so working with a financial advisor you trust can bring a fresh perspective and expertise to the table. By catching faulty retirement planning assumptions in the early phases of your planning, you’ll be able to maintain your ability to meet your short- and long-term financial goals.

At Andersen Wealth Management, our team of advisors has decades of financial planning and retirement planning experience. We’re dedicated to helping you make the most of your working years so that you can enjoy the retirement you dream of. Give us a call today to set up a no-obligation meeting to learn more. We look forward to hearing from you!