When it comes to planning for retirement, lots of people THINK they have everything under control. Unfortunately, those plans are often based on faulty assumptions that ultimately can be quite costly.
Blunder 1 -- Assuming too high a market return It's the crystal ball scenario again. We can never predict the future with 100 percent certainty, which is why it's important to save regularly and start as early as possible. The later you start, the more room for error in your assumed return. When dealing with a shorter time horizon, you have less time to recover from drops like the one we saw in 2008.
Blunder 2 -- Failing to factor inflation into the equation Think you know how much it will cost you to live? You could be underestimating your basic living expenses. Things like housing, utilities, gas and groceries will likely cost more in the future than they do now. Therefore, you'll need to rely on a greater percentage of your returns to simply stay even with current dollar value.
Blunder 3 -- Counting on an inheritance or another income stream
Everything in life is a risk. There is a real struggle that goes on between our current selves and the need to take care of our future selves. You cannot spend everything you make today, and you definitely can't live beyond your means (credit card debt, etc). This is not fair to the future you. Everyone’s situation is unique, but building good saving and investing habits is prudent.
Step back, and make sure you're not inadvertently making one of these mistakes. If you are, it's time to think about revamping your savings strategy.
Jeff
