Setting Your Retirement Assumptions: Life Assumptions

May 6, 2020

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What retirement assumptions do you have? In retirement planning, we rely on assumptions for just about everything. This may seem like a small thing, but this topic is so big that we are taking the whole month of May to talk about it. Today we tackle the life assumptions: how much you plan to spend, how long you plan to work, how long you think you’ll live. Join me as we consider the different assumptions we all make when planning for retirement. What is an assumption?

Your assumptions are your windows on the world. An assumption means assuming something is true, taking it for granted. In retirement planning, we must make assumptions. Assumptions must be made to plug into the models. We assume for inflation, spending, costs, markets, longevity, and health. As you plug these numbers in, the range of potential outcomes gets wider and wider the farther out you project. And often in retirement planning, we plan as far as 40 years out. You can never get the assumptions just right but you can try to get as close as possible. We often have incorrect assumptions about how we will spend money

We need to make assumptions about how we will live in retirement to be able to plan accordingly. One of the biggest inputs into the retirement plan is spending rhythm. Many people assume that they will continue to spend in retirement as they do now. But retirement spending is lumpy. It doesn’t have an even flow. In the go-go years at the beginning of retirement, we often spend a lot, then that spending slows down as life slows down. It’s hard to imagine yourself at age 70 or 80. But try to think about how you’ll be living your life at that age. We assume that retirement is like turning off a light switch

One day we’re working and then the next day we stop. Right? Wrong. Retirement doesn’t have to be that way. Most people actually work for a period of time in retirement. You can take that light switch and make it a dimmer switch. If you are willing to rethink work and rethink income then you can still work and have the time freedom that you seek. You can choose pretirement and slowly But oftentimes it’s not that way. And it doesn’t have to be that way. How will longevity affect your plans?

Be careful with statistics, they can fool you. We often look to statistics to plan our longevity outlook. But your health is not average and it’s not based on statistics. You need a more personalized plan. Consider where you really fall on the longevity timeline based on health, fitness, and family history. We also often assume that our mental capacity will remain the same. You may want to factor in some kinds of systems to help keep your finances running smoothly if your mental function begins to diminish. These aren’t things we have fun thinking about but they are important. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT’S THAT MEAN SEGMENT

[2:54] What is an assumption?

PRACTICAL PLANNING SEGMENT

[6:00] We often have incorrect assumptions about how we will spend money
[10:02] We assume that retirement is like turning off a light switch
[14:32] Is your plan dependent upon you working in retirement?
[17:07] Will helping your kids impair your retirement plans?
[18:38] How will longevity affect your plans?
[23:44] You also need to consider your mental capacity
[26:02] Consider your assets

Q&A SEGMENT

[29:20] A super backdoor Roth question

Resources Mentioned In This Episode
John Hancock longevity calculator
Nova Article by Kate Becker
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center