Successfully preparing for retirement is hard enough, given today's rapidly evolving economy. But several recent retirement surveys suggest that many of us are also making retirement planning more difficult through self-defeating behavior.
Here are four ways you may be sabotaging your retirement-planning efforts. You'd do well to avoid all of them.
1. You're obsessing too much about the market's short-term ups and downs.
When Franklin Templeton researchers asked 2,013 adults earlier this year what concerned them more — market volatility or not reaching their long-term retirement investment goals — people were almost equally split: 47% expressed more apprehension about short-term risks, while 53% said they were more anxious about not about achieving their long-term goals.
With the 24-hour drumbeat of investment news and constant flood of performance data, this preoccupation with the short-term may be understandable. But it's counterproductive.
"A volatile week in the market can leave you feeling that you need to do something," says Michael Doshier, head of retirement marketing at Franklin Templeton. "But when you're talking about investing for retirement over a period of 40 years or more, a week's really only a blip. You don't want to act out of emotion and micromanage your investments for the short-term."
In fact, when it comes to investing for retirement, your focus should be reversed.
Rather than worrying about whether stock prices are about to sink or soar, you should set a long-term asset allocation based on your risk tolerance and your investment time horizon, and then largely stick to it regardless of what's going on in the market.
You can set a stock/bond mix that's appropriate for your appetite for risk by completing Vanguard's 11-question risk tolerance-asset allocation questionnaire, which you'll find in the Investing section of RealDealRetirement's Retirement Toolbox.
But if you give in to the urge to overhaul your investment strategy every time stocks there's the threat of a setback in the market, you run the risk of making moves that may seem prescient at the time but that you may later regret.
2. You aren't pushing yourself hard enough to save.
The problem isn't that we don't have a decent sense of how much we should be putting away for retirement. For the most part we do.
For example, when the Employee Benefit Research Institute asked what percentage of their salaries workers should be saving annually in order to live comfortably throughout retirement, the median estimate was 16%.
That's right in line with the 15% or so savings rate that many retirement experts recommend.
But too many people are falling far short of that goal. When asked in the same survey how much they were actually saving, workers' median estimate was just 10%.
Granted, some people simply may not earn enough to allow them to save 15%, or even 10%, a year for retirement. But for many of us it's more an issue of finding the will and the discipline to save consistently.
One solution: Instead of the typical approach of paying your bills, buying whatever else you need, and then saving what (if anything) is left, do the exact opposite: Devote a percentage of pay to saving upfront — by signing up for a 401(k) or, if that's not an option, an automatic investing account at a mutual fund firm. And then adapt your lifestyle to the income that remains after you've saved.
The beauty of this approach is that money goes directly into savings before you get a chance to spend it, in effect giving you little choice but to live below your means.
If 15% is too ambitious a savings target, then start with something more manageable — 10% or even less if you have to — and then gradually bump it up, say, by boosting your savings rate a percentage point each year or saving half of any salary increases you receive.
Whether you take this approach or the more conventional one of sifting through your budget to find expenses you can reduce or eliminate, you've got to find some way of consistently setting aside roughly 10% to 15% of salary each year if you want to have a reasonable shot at maintaining your standard of living after you retire.
3. You have too-rosy expectations about what your retirement investments will earn.
The markets have clearly been on a roll in recent years. Since bottoming out in March 2009 in the wake of the financial crisis, the stock market has gained an annualized 19%, while bonds have returned 4% a year. Question is, will those stellar returns carry on into the future?
Apparently, many retirement savers believe the answer is yes.
When investment firm BlackRock polled more than 1,000 401(k) participants, more than 80% said they believed investment returns over the next decade will be the same or higher than what they've experienced in the past.
In its most recent investment outlook for the next 10 years or so, for example, BlackRock forecasts annualized returns of 5.9% for U.S. stocks and 3% annually for bonds, while Vanguard's latest projections foresee median annualized returns of 6.6% for stocks and 2.1% for bonds.
Forecasts can be wrong, of course. But considering today's low interest rates and relatively rich stock valuations, I'd say it would be foolish to count on returns anything like those of the recent past or, for that matter, even the roughly 10% annual gains for stocks and 5% for bonds over the past 90 or so years.
There's nothing you can do to boost the returns the market delivers.
But by investing the bulk of your retirement savings in low-cost index mutual funds or exchange-traded funds — which charge asset-weighted annual expenses of 0.17% annually vs. 0.75% for actively managed funds — you can increase your chances of squeezing the most return out of whatever gains the market delivers.
Even more important: If an era of diminished returns does lie ahead, you must redouble your efforts to save, since you won't be able to rely as much on investment gains to bulk up the value of your nest egg.
4. You're too optimistic about how long you'll be able to stay on the job.
Nearly 40% of workers said they don't plan to retire until after age 65 — more than four times as many as 20 years ago — and nearly three-quarters of employed adults plan to work when they reach their retirement age rather than retire altogether, according to a recent Gallup poll.
There's no doubt that a longer career and working after you retire can dramatically improve your retirement prospects. After all, more time on job gives you more time to contribute to your retirement accounts and more time for your savings to rack up investment gains, resulting in a larger nest egg. And the income you earn by taking on a gig after you retire can reduce the amount you must withdraw from your nest egg, allowing it to support you longer than it otherwise could.
But assuming you'll be able to remain in the workforce longer or work after calling it a career (or do both) may be unrealistic. Figures from EBRI's Retirement Confidence Survey show that a large percentage of workers (48% this year) say they retired earlier than they'd planned, often due to reasons beyond their control, such as a health problem, downsizing at work, or having to care for a spouse or other family member.
As for the claim heard in the Gallup poll and many other surveys that workers plan to work in some way during retirement, well, that assumption may be a bit iffy too. Only 29% of current retirees report that they've ever worked for pay since they retired, according to EBRI.
If you want to hold onto your job longer or work in retirement whether for financial reasons or to stay socially engaged, that's fine. But be smart about it. Be sure to stay healthy by eating right and keeping fit so you'll be physically able to continue working.
And to increase the chance that you'll actually have the opportunity to work, make it a point to get training to keep your job skills up to date and learn new ones.
Alas, you may have to do this on your own, as only 15% of workers say their employer offers retraining assistance or continuing education to help them phase into retirement, according to the 2017 Aegon Retirement Readiness Survey.
In short, when it comes to working longer or taking on a part-time job in retirement, you want to be in a position where you can work if you find employment that you like, rather than having no choice but to work because you didn't save enough for a secure retirement and find yourself forced to take whatever job you can get.
Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at email@example.com. You can tweet Walter at @RealDealRetire.