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Your Retirement Projections are All Wrong
Retirement is a major milestone in anyone’s life. It is a time when you can finally relax and enjoy the fruits of your labor. However, many people have one major hurdle to cross before they can fully embrace retirement—financial planning. In an ideal world, we would all have a crystal-clear idea of how much money we need to retire comfortably. Unfortunately, retirement projections are often way off the mark, leaving many people ill-prepared for their golden years.
One of the main reasons retirement projections fail is because they rely on assumptions that may not accurately represent reality. These assumptions are based on a variety of economic and personal factors. For instance, projected returns on investments are typically assumed to be steady and predictable. However, in today’s volatile financial markets, these assumptions can quickly go awry. A fluctuating economy can drastically impact investment returns, leading to substantial deviations from projected retirement savings.
Another common issue with retirement projections is the failure to anticipate unexpected expenses. While financial planners may consider potential healthcare costs, they often overlook other unforeseen expenses that can arise later in life. From home repairs to long-term care, these expenses can quickly drain retirement savings and put individuals under financial stress.
Additionally, life expectancy is a variable that many projections fail to accurately capture. People are living longer than ever before, which means retirement funds need to stretch further. The assumption that you will only live to a certain age can leave you short of funds if you outlive your projected lifespan. It is essential to consider the possibility that you may need financial resources for an extended period.
Another factor to consider is the potential for changing lifestyle preferences. Retirement projections are often based on average spending patterns during retirement. However, everyone’s retirement goals and aspirations are unique. Some retirees may choose to travel extensively, while others may want to pursue expensive hobbies. Failure to account for these lifestyle choices can lead to significant discrepancies between projected and actual retirement expenses.
So, what can you do to ensure your retirement projection is more accurate? Firstly, it is crucial to regularly reassess your projected retirement needs. Situations change over time, and your projections should reflect that. Additionally, consider working with a financial advisor who specializes in retirement planning. They can help you navigate the complexities of projecting retirement expenses and tailor a plan that aligns with your individual goals.
Furthermore, diversify your investment portfolio. Relying solely on traditional investment options such as stocks and bonds may not be enough to secure a comfortable retirement. Explore alternative investment options such as real estate or annuities to provide a more stable income stream in retirement.
Lastly, don’t forget to actively save for retirement. While projections can help guide your savings goals, regular contributions to retirement accounts are essential. Boosting your savings can provide a buffer against any unforeseen developments and ensure you have enough to support your retirement lifestyle.
In conclusion, it is crucial to recognize that retirement projections are often inaccurate and unreliable. To ensure a comfortable retirement, it is essential to reassess your projections regularly, work with a financial advisor, diversify investments, and actively save for retirement. By taking these steps, you can be better prepared for your golden years and enjoy the retirement you deserve.
“Petty staycheck”
-I.e. the petty money that lures you into staying in the COJ
“don’t get stuck in the COJ for a petty staycheck”
I’m permanently banned on LinkedIn for posting my opinion on Covid. Which, btw, turns out to be correct… I serve on my Hospital Board. Love your channel sir!
I went back to work. Doing that saves me a ton of money as we travel less. Getting in the car for a trip costs at least hundreds, getting on a plane costs thousands. I found a job I enjoy so much I still think of myself as retired. And it is nice to go from an even keel to seeing more in the bank each month.
We are still supporting our youngest two children some. I can factor out some of that spending but then we might at some point have grandkids which will add back some spending. One concern about retirement is dealing with the health insurance. I know there is ACA but that seems to get a lot of my colleages waiting till 65 to retire even if they well set money wise. We don't hate our jobs and it pays pretty well and a good amount of vacation time so its hard to voluntarily give it up. Maybe we are hoping for early retirement offers.
Thanks for the info. The word you were looking for is “longitudinal” not linear study.
We retired last year. I was 63 and 3 months old, my wife 62 and 10 months old. We took SS in addition to my 30 year state retirement. With not debt, affordable insurance from the state, and substantial savings and investments, we are living very comfortably. We wintered in Florida last year with our RV and have other travel plans made. Glad we took SS early from your advice Josh. Thank you for your channel.
they are not projections. i am on an off grid homestead with acreage, with cash.
i am self sustaining and i will never outlast my cash stash even if i use it for kindling.
Thank you, Josh! I really needed to hear this. I want to move back to PA from CT to be closer to family (my first Grandbaby, too!), but I'm wondering what I'll do without a full-time paycheck. I'll only have a small savings and my S.S., but I am still healthy and feel that I am ready to stop working full-time. Thanks so much!
As a single never married person my goal is to die with $1 left in my savings and owing a bar tab after buying everyone a round! 63 now and less than 1.5 years to go. I agree about your estate plan statement 100% though! House almost paid off and debt free otherwise.
Congratulations to him. Well done.
You have a quality channel since you keep information understandable for the average Joe or Jane. The talking heads on tv or the web are slick talking shills for the financial industry. Cheers.
Thanks Josh
Josh, you must have dozens of clients that have made the transition from working to retirement. It would be awesome to see some real life examples. You could show the progression of both income and expenses at various milestones: pre-retirement (Age 60); at retirement (Age 65); go-go years (Age 70) and then project what will change in the slow-go and no-go years.
It can't be smooth sailing for everyone. It would be helpful to see an example of a client who had to make some significant lifestyle changes to be able to afford a comfortable retirement. Perhaps they had to downsize and maybe even move to a different state.
One takeaway is clear: having a house fully paid off and no credit card debt greatly increases the odds of living the good life in retirement.
I bet the 2% reduction is a bunch of mortgages getting paid off, folks getting rid of an extra car with reduced insurance costs driving that change.
Annuities seem to be great for insurance companies and risk-averse people who don't understand how markets work.
0% of the $1M+ people in my group of friends have an annuity as part of their wealth plan. A few family members who know nothing about personal finance or investing bought the sales pitch and purchased annuities. This dichotomy is why the wealth gap between the rich and poor continues to grow. The rich are selling the annuities and making billions on the sales fees and returns arbitrage… the (relatively) poor are buying them. And then allowing what should have been their wealth evaporate at death instead of transferring to the next generation.
Want to know who is transferring generational wealth? The executives and sales managers at insurance companies.
Annuities are really for people who can’t manage money. They are very very expensive and don’t provide real market returns.
For those of you out there that wonder about a real world scenario of a person that has a Fixed Indexed Annuity with an income rider. With my fixed indexed income annuity that I bought in October 2018 I am turning it into an income stream this month, or 5 years later. It will take 12.8 years to break even on the principal I gave the insurance company. It will take 15.7 years to get to the amount it grew to in the last 5 years. So, at 78 my principal will be used up and at 81 I will break even on the indexed gains. I also have an IRA that I really don't need monetarily, but will use for some travel and house upgrades. Hopefully this helps somebody out there looking for a way to supplement their SSA income.