Retirement Planning: Separating Fact from Fiction

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By Eric C. Jansen, ChFC®

Planning for retirement, well the saving part anyway, seems to be one of those things far too many of us put off doing or make a half-hearted attempt at setting a meaningful amount of money aside to be able to retire someday. Instead, we use “alternative facts” or false narratives that we tell ourselves as to why we're not saving enough or nothing at all. It feels better that way. Until later in life of course, when reality sets in.

So here we go. Let’s see if any of the statements below sound familiar to you - as in, they sound like what you’ve been telling yourself - and if so, then it might be time to look a little closer at what’s fact and what’s fiction. And more importantly how to get on track to being able to live a financially independent retirement someday. (For more, see: Will Your Retirement Income Be Enough?)

Do any of these sound familiar to you?

Common False Narratives

“I have plenty of time to save for my retirement.”

More likely than not, the years have been ticking by as you’ve been repeating that to yourself. Maybe you’re saving something, but is it enough? A good rule of thumb is to simply start saving the bare minimum you feel you can afford and then increase that amount by at least one percentage point a year, as well as upping it every time you get a raise or an unexpected windfall.

By waiting too long, you also lose out on one of the most powerful wealth building tools - the magic of compound interest where your money is constantly making more money for you. Over a long period, this can make a substantial difference in what you can accumulate for retirement.

“My money won’t have to last that long. I don’t have longevity in my family.”

This statement perhaps is true for people whose parents and other family members haven’t lived long lifespans and for people who themselves are suffering chronic illnesses. But what many other folks fail to realize is how long average lifespans are these days. On average, a man who is 65 years old today will live until 84 and a woman who is 65 will live to 87. And keep in mind: those are averages. About one in four people who are 65 today will live beyond age 90, and one out of 10 will live past 95, according to the Social Security Administration.  Have you considered what would happen if you were wrong? Then what?

Rather than assuming you’ll die young, consider talking with a financial planner about strategies that can help make your savings last for a long life.

“I don’t need to save. I’ll be getting an inheritance.”

This is a common excuse for people who avoid the idea of saving. Here’s the problem: That inheritance could easily dry up through your parents’ medical or long-term care costs, divorce or other unforeseen major expenses. Plus, your parents or other relatives may live longer than they or anyone anticipated, meaning that they’ll potentially still be utilizing “your inheritance” for themselves when you're ready to retire. Then what? Don’t bank on someone else's demise to provide the funds you need for your retirement. That’s not a plan. Or at least a good one. (For more, see: Saving for Retirement: The Quest for Success.)

“I just need to get my kids through college then I can start saving for my retirement.”

Certainly, college costs loom large for parents. However, there are numerous potential sources of money to pay those costs, including financial aid, grants, scholarships and student loans. There is nothing wrong with wanting to help ensure your kids get a great education and head start in life, but the tradeoffs for you can be long lasting and irreparable. Student loans can be used to pay for some or all of their education, but there are no loans available to fund your retirement.  And in the end, if your children end up having to help support you later in life, it's arguable whether that investment made sense for either of you. That’s why saving for retirement needs to be a top, if not at least an equal priority.

“I plan to work even after I retire.”

That sounds great in theory, but there are significant barriers to consider. One is the real potential for age discrimination. Yes, we all know it’s illegal but it happens. If you’re middle-aged or older and you lose your job, it may take a while to find a new one - if you ever do - and during that time you may end up being forced to tap into your retirement savings. Another major barrier for people who plan to continue working: unexpected health problems. Of the 50% of people who retired earlier than planned, 60% said they did so because of an unexpected health problem or disability, according to a survey in 2015 by the Employee Benefit Research Institute. Now that’s something to think about.

“I will need far less income in retirement to maintain my same standard of living.”

For some retirees, this may be true. However, it’s a mistake to assume that this will be the case. In reality, many people spend more money in the early years of retirement than they did their last few years of working. This is often because they finally have the time to do all the things they’ve always wanted to spend more time doing, like traveling, hobbies or finally restoring that classic Mustang that’s been sitting in the garage for many years.

In reality, the amount people spend in retirement is highly variable. That’s why it’s so important to consider meeting with a financial advisor to draw up a specific spending plan. Doing so can help you truly have confidence in your finances and enjoy retirement to the fullest.  

In Summary

In summary, while it may be easy to use “alternative facts” into fooling yourself into thinking you have valid reasons not to be saving what you should, in the end rather than living a retirement lifestyle of your choosing, you may end up living with one filled with constant worry and regret. We can’t change the past, but we can change our habits today that can help give us a far brighter tomorrow. (For more from this author, see: How the Unexpected Can Drain Retirement Income.)

Securities and Investment Advisory Services are offered through Signator Investors, Inc., Member FINRA/SIPC, a Registered Investment Advisor. AspenCross Wealth Management is independent of Signator Investors, Inc.  1400 Computer Drive, Westborough, MA 01581.

This article was originally published on Investopedia.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Retirement , Wealth Management

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