{"id":8567,"date":"2020-11-22T07:17:07","date_gmt":"2020-11-22T11:17:07","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=8567"},"modified":"2020-11-22T07:49:56","modified_gmt":"2020-11-22T11:49:56","slug":"what-we-get-wrong-planning-for-retirement","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=8567","title":{"rendered":"What We Get Wrong Planning For Retirement"},"content":{"rendered":"

\"\"<\/a>Lots of retirees have regrets about their retirement choices. The primary problem: they were too optimistic about their anticipated retirement benefits, which led to them not saving enough during their working years.<\/span><\/p>\n

\n

If they could go back in time, they\u2019d have postponed retiring, paid off debts before leaving the workforce and learned more about personal finances.<\/p>\n

Those are some of the findings in the recent intriguing study, \u201cSubjective Expectations, Social Security Benefits, and the Optimal Path to Retirement<\/a>,\u201d by University of Southern California researchers Mar\u00eda J. Prados and Arie Kapteyn, who culled data from more than 4,632 adults.<\/p>\n

\n
\n

21% said the Social Security benefits they got were substantially different than what they expected; most expected more.<\/p>\n<\/div>\n<\/div>\n

The USC researchers also found that women were more likely than men to have been overly optimistic about retirement-benefits expectations. As a result, men \u201care more likely to save more and reach retirement better prepared,\u201d the authors wrote.<\/p>\n

And lower-educated people were more likely to be overly optimistic, too.<\/p>\n

\"\"<\/a>
Maria Prados<\/figcaption><\/figure>\n

\u201cWhat\u2019s concerning about these findings is that the more vulnerable groups (lower-educated people and women) are the ones who seem to be more optimistic about their future retirement benefits,\u201d says\u00a0Prados,<\/a>\u00a0an economist at the Center for Economic and Social Research at USC.<\/p>\n

\u201cBeing mistaken in this way is costly for these groups because it makes it more difficult for them to realize they need to prepare to be appropriately ready for retirement,\u201d she notes. \u201cGiven the complexity of how benefits are determined, it is not surprising to see an educational and socioeconomic gradient in these misperceptions.\u201d<\/p>\n

About 20% of the retirees in the survey regretted\u00a0claiming Social Security benefits\u00a0<\/a>as early as they did and 21% said the Social Security benefits they got were substantially different than what they expected; most expected more.<\/p>\n

Alarmingly, more than 50% of the non-retirees said they don\u2019t have a good estimate of their future Social Security benefits.<\/p>\n

It doesn\u2019t have to be that way.<\/p>\n

There are a number of things you can do before you retire to avoid making these mistakes. (More on them shortly.)<\/p>\n

Part of the gender differences in retirement-benefits expectations are \u201cexplained by differences in levels of\u00a0financial literacy<\/a>. Improving financial literacy among women would be helpful,\u201d Prados says<\/p>\n

Bolstering the need for more retirement planning knowledge are three other reports released this summer.<\/p>\n

Read on Next Avenue<\/a><\/strong><\/p>\n

A U.S. Government Accountability Office report to the U.S. Senate\u2019s Special Committee on Aging found that all of the 190 women (most over 70) who participated in its focus groups said their\u00a0lack of personal finance education negatively affected their ability to plan for retirement<\/a>.<\/p>\n

A study called\u00a0The Four Pillars of the New Retirement<\/em><\/a>, from the AgeWave think tank and the Edward Jones investment firm, surveyed 9,000 people in the U.S. and Canada and uncovered serious ignorance regarding\u00a0future expenses in retirement<\/a>. (Full disclosure: I was interviewed for the report.)<\/p>\n

\u201cAlmost 70% of those who plan to retire in the next 10 years say they have no idea what their healthcare and long-term care costs will be in retirement,\u201d the study said.<\/p>\n

Finally, new research from Morningstar Investment Management,\u00a0Estimating \u2018The End\u2019 of Retirement<\/em><\/a>,\u00a0found that investors often misestimate their average lifespan, which could have a detrimental effect on their ability to successfully retire.<\/p>\n

According to Morningstar, a retirement period of 30 years (to age 95 or so) is a reasonable assumption for the average 65-year-old heterosexual couple retiring today. But, the authors say, households with higher incomes have longer life expectancies than those with lower incomes, an effect that has been widening in recent years.<\/p>\n

Here are five ways to avoid getting big things wrong when planning for retirement:<\/p>\n

\n
\n
\n
\n
\n
\"\"<\/a>
Cindy Hounsell, CEO of WISER<\/figcaption><\/figure>\n

1. Ratchet up your expected life span for planning purposes.<\/strong>\u00a0\u201cA big issue is forgetting that you may live to be ninety-eight and then starting to run out of money,\u201d says Cindy Hounsell, president of the Washington D.C.-based\u00a0<\/span>Women\u2019s Institute for a Secure Retirement\u00a0<\/a>(WISER) and a\u00a0<\/span>Next Avenue Influencer In Aging.<\/a>\u00a0 \u201cPeople also forget about inflation-increased property taxes, chronic health costs and\u00a0<\/span>caregiving out-of-pocket costs<\/a>.\u201d<\/span><\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

To estimate your life span, try out the\u00a0Longevity Illustrator online tool<\/a>\u00a0from the American Academy of Actuaries and the Society of Actuaries.<\/p>\n

2. Get an estimate of your future Social Security benefit<\/strong>. You can do that by signing up for a free\u00a0mySocial Security<\/em>\u00a0account on the\u00a0Social Security Administration site<\/a>. It will give you personalized estimates of your future Social Security retirement benefits based on your earnings history as well as a way to correct any errors in Social Security\u2019s data for your earnings.<\/p>\n

\u201cYour statement\u2019s an essential financial planning tool to help estimate income in retirement and figure out how much money you will need to supplement your Social Security benefits to pay bills and future costs,\u201d Hounsell says.<\/p>\n

\n
\n

\u201cI like clients to start preparing for retirement at least ten years out,\u201d Braxton says.<\/p>\n<\/div>\n<\/div>\n

And, she adds, getting the Social Security benefits estimate will give you a better idea how much you\u2019ll need to save between now and retirement to supplement those benefits.<\/p>\n

3. When reviewing your Social Security estimated benefits, learn how much more you could receive by delaying claiming benefits past your Full Retirement Age<\/strong>\u00a0(which is between 66 and 67 depending on when you were born.) \u00a0Pushing them back can bump up your benefits by 8% annually, until age 70.<\/p>\n

\"\"<\/a>
Lazetta Rainey Braxton, of 2050 Wealth Partners<\/figcaption><\/figure>\n

Lazetta Rainey Braxton, the Brooklyn, N.Y.-based co-CEO of the financial planning firm 2050 Wealth Partners,<\/a> says many people don\u2019t understand that working a little longer to be able to afford delaying Social Security can wind up paying off.<\/p>\n

4. Create a retirement lifestyle budget plan.<\/strong>\u00a0Braxton says, ask yourself: What is your budget? What expenses will you carry into retirement and what new expenses can you expect to incur?<\/p>\n

\u201cI like clients to start preparing for retirement at least ten years out,\u201d Braxton says. \u201cFive years at the minimum.” That way, you can factor in where you\u2019ll want to live in retirement, the cost of living there and your likely streams of retirement income.<\/p>\n

5. Women: take an active role in financial planning if you\u2019re not doing so.<\/strong>\u00a0\u201cThe finding from the USC researchers indicating that men are less likely to overstate\u00a0their\u00a0retirement benefits than women may also be because\u00a0of\u00a0traditional\u00a0gender roles in many marriages\u00a0and coupled relationships\u00a0where men do the financial planning,\u201d Hounsell says.<\/p>\n

Thankfully, she notes, \u201cThis may be changing as\u00a0more women are primary breadwinners and have equal\u00a0financial planning roles.\u201d<\/p>\n

For unbiased guidance, look for a fee-only financial planner with the Certified Financial Planner designation. You can find one by visiting sites of The National Association of Personal Financial Advisors, The Financial Planners Association and The Certified Financial Board of Standards.<\/p>\n

The three key takeaways from these recent retirement studies, says Hounsell: \u201cPlan for more income than you think you will need; get better informed and retire later.\u201d<\/p>\n

By\u00a0Kerry Hannon<\/a><\/span><\/span><\/span><\/p>\n

<\/div>\n
\n
\n
\n
\n
\"Photogtaph<\/div>\n<\/div>\n<\/div>\n
Kerry Hannon<\/a>\u00a0is the author of Great Pajama Jobs: Your Complete Guide to Working From Home<\/a>. She has covered personal finance, retirement and careers for The New York Times, Forbes, Money, U.S. News & World Report and USA Today, among others. She is the author of more than a dozen books including Never Too Old to Get Rich: The Entrepreneur’s Guide to Starting a Business Mid-Life, Money Confidence: Really Smart Financial Moves for Newly Single Women and What’s Next? Finding Your Passion and Your Dream Job in Your Forties, Fifties and Beyond. Her website is kerryhannon.com. Follow her on Twitter @kerryhannon.\u00a0Read More<\/a><\/div>\n<\/div>\n<\/div>\n
<\/div>\n
\n
\n
<\/div>\n<\/div>\n<\/div>\n<\/div>\n
\"Share<\/a>