Dangerous Assumptions You Should Not Make When Planning for Retirement
Retirement is a big question mark for most people. Even with planning, there will be some gray areas and opportunities for making assumptions about what to expect or how far your money will go.
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Some assumptions, however, are dangerous to your future, and it’s better to get solid information instead.
Retirement experts explain which assumptions can cause problems when retirement planning and what to do instead.
One of the biggest hidden risks in financial planning is underestimating healthcare and long-term care (LTC) costs, according to Kelly Augspurger, a long-term care insurance specialist and certified senior advisor at CLTC.
“It’s a slippery slope, often overlooked until it’s too late, and can be the difference between a secure retirement and financial chaos,” Augspurger said.
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Powered by Money.com - Yahoo may earn commission from the links above.Soon-to-be retirees often believe they’ll self-fund care out of savings or rely on Medicare, yet she pointed out, Medicare doesn’t cover custodial or LTC, and care costs are steadily rising. All of these costs can add up quickly.
“Underestimating monthly or annually can compound into major gaps over time,” said Augspurger.
Augspurger recommended that soon-to-be retirees model their actual costs by using “real numbers like Genworth medians of home care and facility care costs to project scenarios.” You can enlist a financial planner, as well, to help stress-test plans for multi-year care needs. “It’s reasonable to expect LTC costs to increase 4% to 5% or more per year.”
Additionally, you can choose policies with inflation protection, she said. It may not cover all inflation each year, but it will provide a buffer. If your client is 70 or older, and an inflation rider is cost-prohibitive, you can increase the monthly benefit to try to counteract the lack of growth.
Also, identify which buckets of retirement money will pay for care.
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One of the most dangerous assumptions is that Social Security or a pension can fully fund your retirement expenses, according to Jay Zigmont, PhD, CFP, founder of Childfree Trust.
“When living off Social Security alone, you are on a fixed income and any ‘blip’ can mess you up. For example, if you are just making ends meet on Social Security and you need a new car, you won’t be able to afford it,” Zigmont pointed out.
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