Retirement planning is complex and multi-faceted, and the strength of any retirement plan rests heavily on the robustness of the underlying assumptions. This means that any assumptions used should be strenuously tested and regularly revisited to ensure that your retirement plan is fit for purpose.
When building assumptions into your retirement plan, avoid committing one or more of these deadly sins:
1. Underestimating your life expectancy
While there’s no way of knowing how long you will live, we do know that humans are living longer than ever before and, as such, it makes sense to build a ‘best case scenario’ into your retirement plan when it comes to longevity. While your health status and/or family genetics may tempt you to take a shorter-term view of your life expectancy, keep in mind that rapid advances in science and medicine may result in you outliving your projections – and your capital.
Trying to guess how long you will live is a dangerous game to play when developing your retirement plan, and our advice is to develop a range of retirement scenarios using varying longevity assumptions so that you have a clear view of what each scenario entails.
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