Are You Making Costly Retirement Planning Assumptions?

Retirement Planning: Make Sure Your Financial Plan Doesn’t Rely on Faulty Beliefs About the Future

You may be a disciplined planner with a savvy retirement planning strategy, but have you ever stopped to wonder whether your plans are built on faulty assumptions about the future? If they are, you may be in danger of financial insecurity – especially when unexpected financial hurdles arise from time to time. While there’s no foolproof plan for weathering the financial ups and downs of life, avoiding faulty assumptions about retirement planning can help you gain both greater financial security and more peace of mind. Read through the costly assumptions below and consider whether your long-term financial goals may be in danger.

Costly Assumption #1: I’ll Have Fewer Expenses in Retirement

If you’ve been looking forward to retirement as a time when you’ll spend less money, it’s time for a reality check. Not only are many retirees likely to spend just as much as they did when they were working, they’re also apt to have additional expenses for things like travel or pursuing new passions. Even if you aren’t planning to travel the globe or take up expensive hobbies, you’ll need to prepare for rising healthcare expenses. This is especially important as average American life expectancies continue to rise, since you want to be sure you won’t outlive your nest egg and be unable to pay your bills.

If your retirement planning thus far has assumed lower expenses in retirement, a course correction may be in order. When you consider your retirement savings goal, begin by assuming that your current expenses will remain the same, minus the amount you’re currently saving towards retirement. This will allow you to better calculate your target portfolio size and exactly how much you need to save each year. Keep in mind that your retirement planning should also take into account the need to keep pace with inflation, and that you should continue to fund and maintain an emergency fund to cover financial surprises.

Costly Assumption #2: Medicare Will Cover All My Healthcare Costs

Medicare is a truly valuable program for retirees and it will cover many traditional medical and prescription expenses. However, most retirees will also face frequent expenses that Medicare simply doesn’t cover. When determining your retirement planning strategy, plan to pay out of pocket for most dental, vision and hearing costs. In addition, Medicare won’t cover long-term care needs unless you get supplemental insurance in advance – and that can be costly.

You can make better retirement planning choices now by becoming an expert on what Medicare does and does not cover. It may also be advantageous to begin contributing to a health savings account (HSA) if your employer offers this benefit. It’s a smart way to plan ahead to afford medical needs in retirement, and you can enjoy tax advantages, too. Contributions to an HSA are tax-deductible and typically grow tax-free. Withdrawals are also tax-free when used for qualified medical expenses.

Costly Assumption #3: I’ll Be Able to Work for as Long as I Need To

It can be uncomfortable to imagine a future where we see ourselves struggling, but the unfortunate fact is that many older Americans have difficulty finding work. It becomes even more challenging if you experience a disability or illness that leaves you unable to work or limited in the jobs you can do, which is the case for two in five Americans aged 65 and older. Not only could this impact your ability to pay monthly expenses, but it may severely limit your ability to save, too. For both reasons, be sure you aren’t relying on a retirement planning model that doesn’t account for an early retirement or potential disability.

Costly Assumption #4: I Should Maintain a Conservative Investment Portfolio When I Retire

It’s common to move toward a more conservative mix of investments as we age and, in general, this is a savvy strategy. After all, you’ve worked hard to build your wealth and you don’t want to take unnecessary risks. Still, it’s important that you don’t lose sight of the risk of outliving your nest egg either. Instead of a conservative portfolio that is 20 percent equities and 80 percent cash or fixed income, you may want to consider a greater allocation toward stocks in order to offset that risk.

Investing can be complex and every person’s retirement planning needs are different, so talk with your financial advisor about whether greater exposure to stocks may be best for your unique circumstances. You don’t have to allocate 70 percent of your assets to stocks but holding a mix of assets with varying levels of risk can help you continue to generate growth and mitigate the risk of outliving the money you’re so diligently saving.

Are You Making Faulty Retirement Planning Assumptions?

You may not have considered this angle before, but an important part of retirement planning is thinking through the assumptions that underpin your strategies. It can be difficult to do this yourself but working with a financial advisor who can look at your plan from a professional perspective is often helpful. Catching faulty assumptions is important because it can save you money in the present and also preserve your ability to meet financial goals in the future. If you’d like to speak with an advisor on the Arbor Capital team about your retirement planning needs, schedule a call with us today 

There is no time like the present

Let’s connect over a cup of coffee – or if you prefer, we can meet virtually. We meet you where you are.


Did you know we work with many of our clients completely virtually?

Whether you’re in Fort Lauderdale or Fairbanks – or anywhere in between – we’re happy to serve you outside of the traditional brick-and-mortar advisory relationship. Our clients can opt for virtual or in-person meetings as their needs require.