Common Assumption: I’ll be able to continue working as long as needed.
None of us want to imagine a scenario of struggle as we age, but a 2018 analysis by The Wall Street Journal showed that almost 8 million older Americans are having difficulty finding work. Not only could this impact your ability to pay monthly expenses, but it may severely limit your ability to save, too.
In order to protect yourself, stop assuming you’ll be able to continue working until you make the intentional decision to stop. Instead, take a second look at your savings projections and assume early retirement or low-wage work in your later years. The inability to find work is a true concern, as is your health. Many people wish to continue working but are simply unable due to health conditions. So, be sure you aren’t being overly reliant on your ability to earn a paycheck long-term.
Common Assumption: It’s best to be conservative with my investments in retirement.
Most people move toward a more conservative investment mix as they age and, in general, this is smart. After all, you’ve worked hard to build your wealth and you don’t want to take unnecessary risks. However, make sure you don’t lose sight of the risk of outliving your nest egg either. For this reason, a conservative retiree with a portfolio that is 20 percent equities and 80 percent cash or fixed-income may actually want to consider a greater allocation toward stocks in order to offset that risk.
To overcome this faulty assumption, talk with your financial advisor about whether greater exposure to stocks may be best for your portfolio. You don’t have to allocate 70 percent of your assets to stocks, but holding a mix of assets with varying levels of risk can help you continue to generate growth and mitigate the risk of outliving your money.
Common Assumption: Educational debt is always worth it.
If you’ve been operating under the assumption that student loans are “good debt” that you shouldn’t shy away from, you may need to adjust your thinking. According to the Institute for College Access & Success, record numbers of student loan borrowers are defaulting on education loans every year. Those who aren’t are still finding that student loan debt makes it difficult or impossible to do things like buying a home or starting a family. It’s not just students struggling under this debt load either – many parents are picking up the burden through parent loans, too.
When it comes to college debt, you simply can’t afford to assume it will be worth it. It’s important to consider your future ability to pay back loans. Some majors are just more likely to lead to high-paying jobs than others, so there will be times when considering less expensive college options simply makes sense. In-state schools often offer more savings and completing general education requirements at a community college is a great way to save before transferring to another institution. Try to strategize for a balanced approach to paying for college expenses, including loans but also financial aid, parent and student income, and college savings.
Final Thoughts on Planning
An important part of thorough and strategic financial planning is challenging the assumptions your strategies are based on. It can be difficult to do this yourself, but working with a financial advisor who can look at your planning with a fresh perspective is often helpful. Catching faulty assumptions is important because it can save you money in the present and also preserve your ability to meet financial goals in the future.
Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.