Objective information about retirement, financial planning and investments


Retirement Planning: 8 Conservative Assumptions to Consider


Social Security Poster: old man

According to the folks at PBS Frontline, retirement is a gamble at best.  One way to increase your odds of success is to use conservative assumptions.  As a financial advisor I generally use conservative assumptions in all aspects of client financial planning.

If you’re concerned about running out of money during retirement, you need to be realistic and conservative with your assumptions. Here are 8 conservative assumptions for you to consider:

Assume you will need 100 percent of your current income in retirement  

Many rules of thumb suggest you’ll need between 70 and 100 percent of your pre-retirement income in retirement, but plan on at least 100 percent to be safe. Today’s retirees are active, they want to travel, pursue hobbies, and live a generally active lifestyle.  This costs money.  Even though you will likely slow down a bit as you age, medical costs later in retirement will likely rise and may replace what you were spending on activities and travel earlier in retirement.

Add extra years to your life expectancy  

We are all living longer with advances in medicine and the like.  Many factors come into play here including the history of longevity in your family.

Reduce your estimates of Social Security benefits  

The youngest of the Baby Boomers can likely count on Social Security as we know it but I’m guessing that those younger than 50 may see reduced benefits.  In the interest of being conservative, I suggest that you take your current estimate from Social Security and reduce it by say 25%.  If things work out better that’s great, if not then you’ve planned and saved accordingly.

Cut back on your living expenses now  

This not only frees up money to set aside for your retirement, but it helps you adjust to a potentially lower standard of living in retirement.

Be conservative with your investment expectations

We are four plus years into a stock rally and the stock market is at record levels.  For investors nearing retirement it is a good idea to adjust your portfolio and expectations regarding investment returns accordingly. 

Rethink early retirement  

Saving enough to last from age 65 to age 85 or 90 is a difficult task. Trying to retire at age 55 or 60 is just not practical for most individuals, unless you’re willing to significantly change your lifestyle. Working a few more years can go a long way in helping fund your retirement. Those years are typically your highest earning years, so hopefully you’ll be able to save significant sums during that period. Also, every year you work is one year you don’t have to support yourself with your retirement savings.

Consider working during retirement 

Especially during the early years of retirement, you should consider having at least a part-time job. Even modest earnings can help significantly with current retirement expenses help delay the need to withdraw money from your retirement accounts at least to some extent.  Additionally this can be a great way to transition to “full retirement” especially for those retiring early.

Take conservative withdrawals from your retirement accounts  

Don’t plan on taking out more than 3 to 4 percent of your balance annually.  The “four percent rule” is a handy rule of thumb, but it is just that.  Everyone’s situation is different.  It is best to start with a detailed retirement expense budget and then determine what your investments and other sources of income can support.

The best retirement planning strategy is to have a financial plan in place. Monitor your retirement accumulation progress against the plan’s benchmark and make adjustments as needed in areas such as the amount you are saving, your investment allocation, and the lifestyle that your resources will support.  Always be conservative in your planning, it’s much better to have more than you planned on than to hit age 80 and realize that you are out of money.

Approaching retirement and want another opinion on where you stand? Not sure if you are invested properly for your situation? Check out my Financial Review/Second Opinion for Individuals service.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out the Hire Me tab to learn more about my freelance financial writing and financial consulting services.  

Photo credit:  Wikipedia

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  1. John Brownstein says

    The key to retirement is to start saving early and be consistent. Save with every paycheck and take advantage of any employer matching plan.

  2. Awesome tips. Even though I’m a ways away from retiring, it’s still nice to have these tips in mind when trying to see how much I need to save in order to reach my goals. It’s hard to plan out 30-40 years, but I guess just starting to think about and save is a decent start.

  3. Terry W. Rushton, MBA, CPA says

    All good initial tactics. I would add that you need to decide early whether you will want to do it yourself, or find help. If you’re wise enough to consider help, look for someone who’s philosophy seems to closely match yours and who has a track record that indicates he/she won’t forget that it is always YOUR money and YOUR life, not theirs.

  4. “Cut back on your living expenses now”. I love this one. My parents would be so much more prepared for retirement if they had done this at my age.
    It’s what I am already starting to do at age 34. Who needs a McMansion? I’d rather have freedom!

    • Roger Wohlner says

      Agatha thanks for your comment. I think the mantra all things in moderation applies. As the parent of three kids they can be a pricey proposition, but on the other hand I never want to be in the position where they feel the need to help support us.

  5. Roger there is no better feeling than being “right”. For those with realistic consumption and conservative assumptions, the glory comes when they are retired and their portfolios are compounding at a rate they could never imagine.

    Your other ideas are spectacular. Really the whole tuned down assumption modeling could be applied in many areas. The issue most face is a disconnect between long term results and short term expectations.

    Well done.

    • Roger Wohlner says

      Andrew thank you for your comments. I’ve always been pretty conservative in my planning assumptions and given the choppy markets and increased longevity I believe this approach is vital.

  6. So would be interested in what conservative investment expectations should be? In my personal projections, I have two sets of numbers…one aggressive and the other more moderate. In my tax sheltered accounts, my aggressive option is 7% and moderate is 5%. In my non sheltered accounts, from which I derive dividend income, my two options are 3% and 0%, both net of dividends. Dividend growth is a modest 2% for both. Be curious if these projections are realistic given the post doesn’t mention any. Thanks.

    • Roger Wohlner says

      Greg thanks for your comment. Hard to judge your numbers exactly not knowing your asset allocations, but they don’t seem excessive given say a balanced type of approach. The next few years will be interesting given both the tremendous rally we’ve seen here in the U.S. for stocks over the past four years and the poor outlook for bonds.

  7. Being in my early 30’s I’m being even more conservative when it comes to Social Security: when I figured out how much I’ll need for retirement I did it under the worst-case assumption that there will be no social security by the time I retire. If it’s still there it’ll be a bonus but if not at least I won’t be missing it.

    • Roger Wohlner says

      Jeff thanks for the comment. I think your approach is right on, always better to be more conservative in your assumptions and then to be pleasantly surprised vs. the alternative.

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