There’s plenty of useful information about retirement to be had online and from financial pundits. The problem: As these outlets are meant to reach a broad audience, they may not always apply to your specific financial situation.
Retirement planning is a perfect example. There are plenty of top 10 lists or suggestions on things you need to do to retire successfully, but they’re necessarily broad-based. This isn’t to say that the advice they offer is worthless; it just means you have to take what may be a good general suggestion and tailor it to your own needs.
I Should Use Life Expectancy as an Absolute When Planning
Life expectancy, by definition, is an estimate. For starters, no one can know with any certainty how long they will live. The life expectancy tables you may see can only be general estimates based on aggregate data.
Additionally, life expectancy changes, at least statistically, as you age. For example, no one is expected to live to age 90 when they are born; but, if you find yourself at age 92, obviously your life expectancy is greater than 90.
So, if you’re basing your retirement strategy around your life expectancy, you may find yourself coming up significantly short if you live to a long age.
I Shouldn’t Own Any Stocks After I Retire
It’s human nature to want to dial down your investment risk once you retire. After all, you’ve worked and saved your entire life for your nest egg, and a single 10% or 20% stock market correction could seriously damage your retirement prospects going forward.
The problem with this line of thinking is that your retirement might last 30 years or longer. Not only is that plenty of time for your stocks to recover, but switching your growth investments into savings accounts that pay a fraction of 1% means your retirement funds won’t even keep up with inflation.
While it’s true you shouldn’t keep your entire nest egg in aggressive stocks, moving completely out of stocks isn’t the right answer either. Talk to your financial advisor to strike the perfect blend between risk and reward for your retirement years.
Interest Rates Will Remain About the Same Throughout My Retirement
One of the difficulties in planning a retirement portfolio is making proper assumptions. If you roll over Treasury bills or CDs, for example, you may know what interest rate you’ll earn for a period of time, but that amount may rise or fall throughout your retirement.
If you’re banking on earning the amount you are now for the entire time that you’re retired, you’re likely to be wrong. The good news at this point in time, however, is that rates are near all-time lows. This means you’ll likely earn at least as much as you are now, if not more, while you’re retired.
Just be aware that interest rates are a fluctuating medium, and the rates you earn throughout your retirement are likely to change.
