The plans of the diligent lead to profit as surely as haste leads to poverty. - Proverbs 21:5
You’ve probably heard the adage, “Failing to plan is planning to fail.” The opposite is mostly true as well. I say “mostly” because a plan can’t guarantee success, but it certainly tips the odds in one’s favor.
It seems surprising, then, that more people don’t plan for their later years. According to the Employee Benefit Research Institute (EBRI), just half of today’s workers have tried to calculate how much they will need to have saved so that they can live comfortably in retirement.
Even fewer have estimated how much they may need during retirement for healthcare expenses, how much they could withdraw from retirement accounts, or how they would cover emergency expenses.
The EBRI’s annual Retirement Confidence Survey has long tracked a disconnect between the expectations current workers have about their ability to work past the traditional retirement age of 65 and the number of actual retirees who did, in fact, work that long. There has also been a long-standing gap between the number of current workers who expect to work for pay to some degree in retirement and the number of retirees who actually have been able to do that. (See The Worker/Retiree Disconnect.)
Similarly, a recent Fidelity survey found high levels of confidence among current workers regarding their ability to retire comfortably while also some signs of unrealistic retirement-related expectations. For example, nearly 30% of respondents believe financial experts would recommend an annual investment portfolio withdrawal rate of 10-15% during retirement, a level that Fidelity cautioned would “use up one’s retirement savings quickly.”
Nearly 40% of respondents to Fidelity’s survey estimated that out-of-pocket healthcare costs for a couple throughout their retirement would run between $50,000 and $100,000, whereas Fidelity figures those costs will total nearly $300,000.
When asked about Social Security, just 17% of respondents correctly identified the age when they will become eligible for their Full Retirement Benefit. Claiming benefits earlier than that age will permanently reduce one’s monthly benefit amount.
Dwight Eisenhower famously said, “In preparing for battle, I have always found that plans are useless, but planning is indispensable.” Hopefully, retirement won’t be as chaotic and unpredictable as war, rendering our plans useless. But it’s a sure bet that having taken the time to plan will prove indispensable. A good plan can help set the right course and help us make contingency plans for much of what can go wrong.
How well have you planned for retirement? Do you know how large a nest egg you may need? Do you know how that translates into a a monthly dollar amount to be investing right now, or how much monthly income that is likely to provide once you retire? How thoroughly have you thought through your future healthcare costs? When do you plan to start claiming Social Security benefits?
The MoneyGuide software can help with all of this. It has an entire section devoted to the questions: “What are your expectations for retirement?” and “What are your concerns?” That’s where you can begin making realistic plans for what you want while also preparing for what could go wrong.
