Whether you are 5 years from retirement or 25 years from retirement, understanding a few key assumptions regarding retirement planning can be helpful. Finding the truths about retirement advice and how it might apply to your situation is an important step in having the retirement that you desire.
Let’s start with big one - will social security be there for us at retirement?
Yes, it is very likely that social security will still be around regardless of your age. However the bigger truth about social security is that it will continue to decline in importance as it relates to post retirement income. Having other sources of retirement will continue to increase in priority for those who are younger.
Will social security pay the bills in retirement for those near retirement now?
Mostly likely it will not even if you are only five years from retiring. The average social security benefit is less than $1,500 per month which is near the poverty line for couples with no dependents. Even for those making over $100,000 during pre-retirement years, the maximum social security benefit is only going to cover at most 35% of pre-retirement income.
Do we need to worry about the impact of inflation in retirement?
Probably, even though overall inflation is very low, there can be periods of inflation that will impact the spending power of your retirement income. Plus, there is always commodity specific inflation that can have a great impact on your monthly expenses.
Can we count on the stock market to continue to grow our income in retirement?
This is probably not as likely as you might think. As we get closer to retirement, most people will start making adjustments to their portfolio and could be mostly out of the stock market during retirement years. Growth your portfolio could still occur in retirement but the resulting income increases will be much lower than it was during pre-retirement years.
Is it safe to assume if we need money in retirement we can just go back to work?
Maybe, the growth in the economy and those seeking employment will be major factors in determining if you can reenter the workforce during your retirement years. The older you are when you want to re-enter the workforce, the more difficult it will likely to be to find employment and you also have to consider the tax implications regarding your social security payments.
What would you say to people who plan to use their inheritance for retirement?
That is a very risky plan because one’s inheritance maybe significantly less than they think. As people are living longer, parents are spending more of their wealth on their own needs leaving less to their heirs. Regardless of affluence, this is really not a good retirement strategy.
Is it a given that we will need less money in retirement?
Most of us will need less money in retirement than we do now. Our children will be off the payroll, we will no longer need to allocate part of our income to savings, generally we have few if any debts and we may downsize our home all resulting in less income required for our daily lives.