Most Retirement Plans are Not Realistic

April 23, 2014

Since the recent financial meltdown, people are increasingly talking about retirement planning. However, most of them are not discussing the real issues. Some of the worst mistakes that the current generation is making are as follows:

Not Taking Life Expectancy into Account
April Blog 2 - Image-7ol5gPeople will live longer than previous generations. Usually life insurance companies have the best idea about life expectancy, since their balance sheet is directly correlated to this issue. According to the Central Intelligence Agency, the life expectancy at birth for United States citizens is currently 79.55. And, this number is expected to go much higher in coming decades as advancements in terminal disease treatment are progressing.

If someone is expecting to retire at 65, they may only plan to live for another 15 years (on average). But, by the time he turns 65, his life expectancy may have increased to 100. This will create an additional burden on the retirement portfolio that was planned decades ago. Hence, many financial advisors suggest that you add a “buffer expectancy” of at least 15-20 years on top of your life expectancy.

Not Considering Long-Term Care Need
As you age, you will need long-term care. Those potential bills are often excluded from the retirement planning process. The nest egg may have provisions for long-term care needs, but if you need it 10 years earlier than planned, then it alone can dry your savings quickly.

Misleadingly Forecast on Expenses
Most people, even their financial advisors, think that expenses go way down after retirement. While this is true in the later years in retirement, the first few years may turn out to be more expensive than forecasted. As one retires, they now face 40 hours of extra time to spend, which can take a big toll on the nest egg in terms of “recreational activities,” such as traveling and eating out more often than anticipated.

Focusing Too Much on How Much Needed to Retire
The retirement planning discussion often reduces itself to a big number of accumulated wealth, which is needed to generate investment income during retirement. Most people are planning to retire from “not having enough time” into a “too much time” scenario! That often does not work out very well. One should plan more based on what to do after retirement, rather than how much savings is needed. Often, it is a good idea to take up part-time work after retirement to stay connected to social activities.

After retirement, the lack of life planning can cost a lot in terms of impulse vacations and taking up expensive hobbies. If you think your retirement plan is full proof, think again.

Put your mind at ease by contacting HFG Wealth Management. We can review your retirement plan and help you make any necessary adjustments.

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