Retirement planning is hard. It requires giving thought to a host of questions whose impact may not materialize for a decade or more, which provides a lot of room for error. This explains why most of us tend to put off such work for another day. But does that long-term time horizon give us a false sense of confidence and put retirement success at risk?
Setting expectations is a critical component to success in any number of endeavors. It applies to your job, for instance. You can only determine success when you measure your work against expectations set by your boss. It applies to personal activities too. Set expectations for that new blockbuster too high and you are bound to be disappointed. Conversely, haven’t we all had that experience for which expectations were low, only to find yourself coming away with a memory to last a lifetime? So too with retirement planning, the more we can increase the odds of exceeding our expectations, the better our experience will be. And evidence suggests we are doing ourselves a disservice.
Each year the Employee Benefit Research Institute conducts a survey that seeks to measure worker and retiree confidence about retirement. Key findings from the last two surveys point out how far our expectations can be from the reality we are likely to experience.
- While most workers are confident they know how much monthly income will be needed for retirement, only 44% report having actually estimated how much income would be needed. Said differently, a majority of us are approaching retirement as if the pieces will simply fall into place, a key ingredient in unmet expectations.
- The idea of retiring early is appealing. Who among us doesn’t dream about spending our time as we wish sooner than society considers normal? The caveat is that we want to do so on our terms and timing which doesn’t always happen. More and more people are finding themselves retiring unexpectedly early during the COVID pandemic for reasons outside their control.
- Most workers expect to engage in some level of work for pay in retirement. The reality is quite different. The percent of workers planning to work for pay in retirement stands at 80%, compared to the 28% of retirees who report they have actually worked for pay in retirement.
Recognizing these expectations gaps can go a long way towards bolstering your retirement success. You may feel you have a mental handle on the facts and figures, but take the time to put them down on paper to see if the math adds up. Think about alternatives if life circumstances put you out of work before you are ready due to reasons outside your control. And consider the reliability of your income sources after retirement, with an especially skeptical eye towards job-related income. The better your plan, the clearer your expectations, and the greater your chances of retirement success.