The nature of retirement and its meaning to people is rapidly changing. Compared
to the last century, there are clear trends pointing to earlier retirement with
higher quality of life expectations. Unfortunately, there are a number of new
financial risks that, combined, may threaten and even reverse these trends. The
overriding concern is that as early as this decade we may see great numbers of
people outlive their assets and be forced to fall back on their children and
government social programs for sustenance.
A secure retirement is not easy to achieve. The following describes the most
common retirement planning mistakes people make.
Retirement Mistake #1: People Don't Save Enough Money
While many people think that they have adequate resources for retirement, few
actually do. A recent study found that 45 percent of all U.S. households have
less than $25,000 in assets excluding their home), yet two-thirds of all workers
expect to live as comfortably in retirement as they did when they worked. The
reality is that the average person would use up that $25,000 in two or three
years – even with their Social Security benefits.
Have you saved adequately?
Retirement Mistake #2: People Underestimate their Life Expectancy / Longevity
It is not adequate to assume that you only need enough retirement assets to
sustain your lifestyle through the age of 75, 85 or even older. The fact of the
matter is – you have no idea how long you are going to live.
The average life expectancy in the U.S. is over 77 and that figure is expected
to creep up to 85 by 2065, according to Ronald Lee, an economic demographer at
the University of California, Berkeley. However, these life expectancy numbers
are misleading. Life expectancy numbers are averaged for all deaths regardless
of age – so they include infant and other young person deaths – making the life
expectancy average deceivingly young.
A more representative statistic is that in 2010, life expectancy for people age
65 was 84 years old; for those age 75 life expectancy was 87, nearly a whole decade
higher that the general life expectancy of 78.4.
It is even more shocking to know that there is a greater than 50 percent chance
that at least one partner from a couple in their 60s will live to the age of 95.
Does your retirement plan enable you to live till 95? Will you outlive your
Retirement Mistake #3: People Underestimate the Effects of Inflation
Inflation makes goods and services more expensive and decreases the value of
Most people underestimate the impact inflation will have on their retirement
plans. Even at relatively low rates, inflation is a real thief of buying power
over time. Most experts feel safe recommending that individuals calculate their
retirement needs using a 3 percent inflation rate. But, it is important to
understand that we have seen (as in the late seventies and early eighties)
sustained inflation rates of around 10 percent!
Even at a three percent inflation rate, a person retiring today who requires an
annual income of $50,000 to cover their expenses will need close to $100,000 to
maintain the same lifestyle in 20 years.
Have you planned for inflation?
Retirement Mistake #4: People Mis-Manage Their Debt
The average person retiring today carries over $6,000 in high interest credit
card debt into retirement. Paying just the minimum payment will consume a total
of over $22,000 over a period of 20 years. By comparison, a person taking
advantage of debt consolidation could pay off the same debt, with same monthly
payments in just 6 years and with a total of only $6,760.
Are you retiring with credit card debt? Can you pay off your mortgage before you
Retirement Mistake #5: People Mis-Manage Their Assets
Many people fail to properly manage their investments and do not shift into
safer though smaller gain investments as they get closer to retirement.
For example, when it comes to stocks, in any given year the market could swing
20 percent or more up or down. Over a long period of time these swings smooth
out, which makes stocks a suitable investment when you are young and have a long
time period to accrue money.
However, if a person age 65 looses 20 percent of their assets – it dramatically
impacts their ability to fund retirement.
Are you protected from swings in financial markets?
Retirement Mistake #6: People do not Guarantee Their Most Basic Needs are Covered
At the very least, everyone needs food and shelter, and the worst thing that
could happen to a retiree is to run out of money well into retirement and not be
able to have a place to live or food to eat.
It is critical for everyone entering retirement to assess their shelter and food
needs and to ensure they are covered through a guaranteed, inflation adjusted,
fixed income solution (any combination of annuities, pension, and Social
Have you guaranteed suitable income?
Retirement Mistake #7: People Do Not Plan for Health Problems
When creating your retirement plan, it is very important to understand that your
chances of requiring long-term care are very high. One out of every four persons
aged 65 and above will require long-term care. One out of every two persons aged
85 and over will require long-term care. Worst of all, the costs of long term
care are staggering. It is estimated that by 2021, the average rate for a
private room in a nursing home will be $175,200 annually. Most retirees do not
even have this much money saved for the entirety of their retirement.
Have you planned for a serious health crisis in retirement?
Get a personalized assessment of your current retirement situation. Use the NewRetirement Automated Online Retirement Calculator.