Avoid These Retirement Miscalculations

Effective retirement planning starts with making the right assumptions. If we hope to be on the mark when we retire, we need to make accurate estimations about important retirement variables, including how long we will live and how much we need to save. Once we have these figured out, we can take the appropriate action to help insure we will be ready for retirement. If we do not plan ahead or if we make erroneous assumptions, the quality of the retirement life we hope to live can be in jeopardy.

Sometimes despite our best efforts we make mistakes in our calculations for retirement, and we are forced to live with the consequences. But we can greatly help our cause if we are careful to avoid these glaring retirement miscalculations:

1. Underestimating the length of retirement. Average life spans continue to increase, with American males adding almost two years each decade and females living about 1.5 years longer per decade. If you are a 65-year-old U.S. male, you now have a 40 percent chance of living to 85. Females have even better odds, with a 50 percent chance of getting to 85. We all want to live long, productive, and inspiring lives for as long as we can. But if our plans for retirement do not take into account the likely increase in longevity, we could find ourselves out of resources with more time still ahead.

To prepare for the possibility of an extended retirement, we need to make financial
calculations based on a longer time frame to insure there will always be funds available. If you are able to delay claiming your Social Security payments, you can increase the monthly amount you will receive later on in life. Try to view Social Security as an insurance program that will protect you in extreme old age. If you retire too soon you will get smaller Social Security checks every month, and you will be drawing from your retirement savings over a longer period of time. It may sound good to get out of a stressful work situation as soon as you can, but be careful to weigh the full impact of early retirement on your long-term lifestyle.

2. Living beyond your means. After decades of working, everyone deserves a few expensive meals and extravagant travel adventures. Some people may be fortunate enough to spend freely in retirement, but most will not. The people who spend extravagantly during the early days of retirement could find themselves in dire financial straits as their retirement years continue to roll on. Living with a “why wait when tomorrow may never come” attitude is a mistake, unless you actually have unlimited funds.

A better motto for most of us is to live beneath our means. Rather than spend money like it is burning a hole in our pockets, spend less and savor the positive balance in your bank account at the end of the day. Calculate what your expenses are, and live within a reasonable budget. By living a more moderate lifestyle that is within or beneath your financial means, your savings will stretch much farther and you will reduce the risk of outliving your savings.

3. Following investment advice not right for you. The financial market is a challenging arena, even for experts who dedicate their lives to it. Having accurate information is no guarantee you will put your money in the right place at the right time. And investment advice that is good for one person may be entirely inappropriate for the next. The best investment vehicle depends on your individual situation and requirements, the level of risk you can comfortably assume, the purpose of the investment, the amount of money you are considering investing, and the number of years you have for the investment to grow. And sitting safely on the sidelines is not a good option either because inflation can eat up your purchasing power.

If you are not a financial guru or interested in becoming one, a good way to go is to work with a qualified financial planner who has your best interests at heart. You can start with recommendations from family and friends. Make sure your adviser understands everything about your specific situation and goals. A red flag is someone pushing a specific investment vehicle before truly understanding your goals. Good financial planners understand the relationship between fees and performance and will do everything in their power to keep them as low as possible without sacrificing returns. Some good advice from a reputable adviser can go a long way toward helping you make better investment decisions.

From my US News & World blog. Dave Bernard is the author of Are You Just Existing and Calling it a Life?, which offers guidelines to discover your personal passion and live a life of purpose. Not yet retired, Dave has begun his due diligence to plan for a fulfilling retirement. With a focus on the non-financial aspects of retiring, he shares his discoveries and insights on his blog Retirement–Only the Beginning.

This entry was posted in Aging, Money Matters, Senior Lifestyle, Senior Safety and tagged , , by LoveBeingRetired. Bookmark the permalink.

About LoveBeingRetired

Dave Bernard is a California born and raised author and blogger with an extensive 30 year career in Silicon Valley. He has written more than 300 blogs for US News & World On Retirement and his personal blog Retirement – Only the Beginning. He has authored three books: "Are you just existing and calling it a life?"; "I want to retire! Essential Considerations for the Retiree to Be"; and " Navigating the Retirement Jungle". Dave was also a contributing writer for the books 65 Things to do when you Retire (“Positive Aging – Old is the New Young”) as well as 65 Things to do when you Retire – TRAVEL (“Travel to Discover your Family Heritage”). He lives in sunny California with his wife, his Boston Terrier "Frank" and a passion for the San Jose Sharks.

6 thoughts on “Avoid These Retirement Miscalculations

  1. I have planned my investments and income to last until I am 92 so it sounds like I am being incredibly optimistic according to the statistical results! But it makes me feel secure to know that my investments and income will provide for a best case scenario.

    I retired early at 55 so there is an increased risk of running out but I have adjusted my spending cap to account for it.

    According to this statistic, I have 30 possible years to wander the globe, and follow my passion of the moment. How exciting that is to think about! 20 years as a directionless young person, 35 years of working too many hours a day and 30 years of enjoying whatever comes my way.

    • I like your outlook Kelly! Especially the part about 30 years of enjoying whatever comes your way. It sounds like you have seriously prepared yourself. I wish you luck on 92 and beyond. 🙂

  2. I find it interesting that in the workplace there are new training courses evolving for boomers and the gen x’ers and milllenials. Supposedly, they are not working together cohesively.

    One of the main complaints of the younguns is that boomers are workaholics. Also the younger ones want to have time for leisure at work and to use their tech gadgets.

    I don’t know if anyone is talking about how stressful the workplace is for boomers. But it’s not something to take lightly. I know many who’ve had heart attacks and other medical issues related to stress.

    Sure they can learn to meditate and sing kumbaya but the reality is: if young folks aren’t doing the job, then the workaholics are being worked to death.

    Many are opting to leave earlier. And while this may not be a sane decision in some respects, it certainly beats dying on the job and never drawing your late age social security.

    It truly is a crisis in the workplace and people want to act like it doesn’t exist. Thanks for your post.

  3. Hi Sandy and thanks for the insight. I agree that many a boomer pursued the path to riches at the steep cost of their family and life, replacing it all with work. And you cannot get it back. Hopefully future generations will learn that a balanced live of living and working makes the best sense in the end. Enjoy!

  4. Hi Dave….These are all good reminders for sure! I’m not yet retired but I think it is wise for any of us contemplating retirement to have answers to these ideas. My husband and I enjoy our work so we have no plans to ever fully retire….just slow down as preferred. But living below our means is key. We are also fairly fortunate that we have a background in real estate so we are putting much of our investments in products that we know, can evaluate carefully, and can manage ourselves. Hopefully we aren’t miscalculating any of our assumptions! ~Kathy

    • Thanks Kathy – I always go back to the belief that it is better to plan and prepare ahead of making the move to retirement. That way if there are gaps or issues, you have time to make adjustments where possible. And congratulations to your and your husband who enjoy what you are doing. Since a fulfilling retirement is about doing what you want to do, I believe there is definitely a spot for work as long as you enjoy doing it! 🙂

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