Retirement Planning Illusions

Ray’s Take By its nature, retirement planning requires making plans without being able to know the future. When it comes to retirement planning, there’s no shortage of conventional wisdom.

According to an Employee Benefits Research Institute 2013 Retirement Confidence Survey, despite roughly half of retirees finding they actually spend as much or more in the early stages of retirement than they did before they retired, only 11 percent of current workers expect to spend more in retirement, with nearly 60 percent expecting to spend less. 

There’s that conventional wisdom at work here – assumptions that may not hold true for everyone.

First there’s the conventional wisdom that you’ll only need 70 to 80 percent of your pre-retirement income. It is true that work-related costs go away when you retire, but other expenses can move into that slot, particularly health care costs. Even if you wait until age 65, Medicare doesn’t cover everything. Freed from the limits of work schedules, most people find time to spend more money, not less, especially with travel.

Another assumption is that you’ll be in a lower tax bracket when you retire. You may find that taxable portfolio income, retirement account distributions, pensions (if you have one) and Social Security income could combine to keep you in the same, or perhaps a higher, tax bracket. 

Unless you have a crystal ball, it’s better to really run the numbers on where your retirement income will come from and estimate the tax liability. Taxable distributions in nonqualified portfolios are still taxable even if you’re reinvesting them. The IRS doesn’t care whether or not you are spending them.

No other factor comes close to helping you achieve retirement success as the amount that you’re able to save. Financial planning advice is generally focused on helping you understand the likely outcomes of your financial choices, and a financial planner can assist you with looking at the variables of your individual needs and goals to create a plan that will serve you well.

Dana’s Take Conventional wisdom comes from a generally accepted principle and is often passed down in families from generation to generation. 

Ray’s father, E. Denby Brandon Jr., and his grandfather, E. Denby Brandon Sr., had a number of favorite aphorisms. Senior liked to say, “Just take one stoplight at a time,” meaning don’t tackle every problem at once. Junior’s favorite was probably, “It’s bad to be old and broke,” and he dedicated his career to preventing that outcome. 

Other maxims regarding finances included, “Anyone who says money doesn’t matter, usually has lots of it,” and, “Money can’t buy happiness but it allows you to look for it in some interesting places.” Ray likes to remind us “not to mistake luck for smarts.” Lastly, Denby Jr. advised, “It’s easier to not spend money than it is to earn it.” 

What conventional wisdom did your parents and grandparents share? If it still rings true, pass it on. 

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