Dreaming about retirement is almost a national pastime—we all have visions of sunny beaches and zero alarm clocks in our heads! However, let’s get real for a moment. Is your retirement plan actually on track or is it more wishful thinking? After all, it’s easy to get carried away with the fun stuff & overlook the details that make a good retirement plan. Here are 10 signs that your retirement plan needs a reality check.
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Overestimating Social Security Benefits
Most of us look forward to cashing in on Social Security—but if you’re counting on it to cover all your expenses, you’re in for a surprise. It was never designed to be a complete income replacement. Instead, it’s more like a supplement. As such, anyone who has a plan relying on Social Security checks being your main source of income should think about making a plan B.
Not Having a Withdrawal Strategy
If you’ve saved up a nice amount then great job! But how are you going to spend it? Without a smart withdrawal strategy, you’ll end up paying more taxes than you need to—or worse, running out of money too soon. You need to know exactly how you’ll spend it so that you can make your money last for your entire retirement.
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Assuming You’ll Work Forever
While it’s great to love your job, assuming you’ll never want or be forced to retire is dangerous. You never know what could happen in life, such as health issues or layoffs so you should never make a retirement plan based on the idea that you’ll always have a steady income from working. You should think about what happens if that changes.
Overlooking Lifestyle Changes
Retirement often leads to huge changes in how you live your day-to-day life. For example, maybe you’ll want to travel more or start some new hobbies. Either way, your retirement plan needs to consider these potential lifestyle shifts—if it doesn’t, you’re setting yourself up for a mismatch between your dreams & your budget.
Unrealistic Investment Expectations
We all hope for sky-high returns on our investments and it’s okay to be optimistic. However, having unrealistic expectations will lead to disappointment since investments can go up & down. A better idea is to plan for steady, realistic growth. At least that doesn’t involve banking on winning the financial lottery!
Assuming Expenses Will Decrease
Many people think their expenses will go down once they retire and that’s partially true. But while some costs might reduce, others, like travel & leisure, can go up. Inflation will also keep pushing the cost of living higher. It’s better to overestimate your expenses and have money left over than to find yourself short.
Not Considering the Impact of Debt
Carrying debt into retirement is a buzzkill, no matter if it’s a mortgage or credit card. Any debt involves making monthly payments that eat into your retirement income so your retirement plan should include a strategy for reducing debt—or eliminating it entirely. Otherwise you set yourself up for financial stress.
Forgetting About Family Obligations
Once you retire, you may start opening up your wallet more than you expected for your family. You might need to help your grown-up kids and maybe your parents—don’t forget about spoiling the grandkids! As such, you’ll need to consider this when planning for retirement. If you don’t, it’ll seriously catch you off guard.
Ignoring the Possibility of Relocation
Getting older often involves changing your mind about where you want to live, like moving to a place with warmer weather or closer to family. But it’s not cheap. Ignoring the chance you might move during retirement will create financial problems so you’ll need to factor in some funds for moving expenses in your retirement plan.
Disregarding Changes in Social Circles
Retirement also affects your social life as you may not see those work friends as much. As such, you might start doing new things or join groups to stay social—and your retirement budget should reflect that. You need to consider the cash you’ll need for things like trips, club memberships & other social events.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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