Making incorrect or overly optimistic assumptions about your retirement portfolio and plans can lead to disastrous results. Some of the most common retirement assumptions that may not turn out to be true are:
Assuming that stock market returns will always be high.
Investing in the market at the wrong time can lead to a ‘lost decade’ or even a longer period of no returns, as people who invested in the stock market in the 1930s and in the late 1990s realized to their great sadness. Solution: To be comfortable, you should assume relative low returns for the long term projections. And save accordingly.
Assuming that inflation will always be low.
It is hard to imagine now, but in the late 1970s, inflation rate was over 10%. A high inflation rate can erode the purchasing power of your fixed retirement income, such as a pension or an annuity. Solution: You should invest at least a portion of your portfolio in a way that protects against inflation, such as stocks and real estate.
Assuming that you will be able to work past the retirement age.
Some people never want to quit. They love their job and they want to work for as long as possible. Unfortunately, however, working past a certain age may not be an option for everyone. Some professional fields move so fast that you may not be able to keep up cognitively. You may lose your job and not be able to find another one (age discrimination is a reality that you may not be able to combat). You may not have the health and stamina to continue working. Solution: do not make an assumption that you will be able to make a high income after retirement age. Save more now and view any money earned after retirement as an unexpected bonus.
Assuming that you will get an inheritance.
Increasing longevity and rising long term care cost mean that many parents may not be in a position to leave any money to their children. In addition, many parents may simply not want to leave any money to their children or to a particular child (no matter how hurtful it will be). Solution: do not count on money from the parents. Count only on yourself and your own saving.
Assuming that the government will help.
Many people rely on Social Security, Medicare and Medicaid as their sole or primary source of income and health care after retirement. However, all of these programs have significant financial problems and may be insolvent by the time you hit the retirement age or may become insolvent while you are already retired. Even if these programs are not bankrupt, they usually do not provide sufficient money to live on. Without additional savings, a Social Security check can barely cover the rent. Medicare now demands significant co-payments for doctor visits and medicine. Solution: have a plan B, which involves additional savings and income.
This article only offers general information. Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions. As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.