4 Assumptions That Could Destroy Your Retirement

By Maurie Backman Markets Fool.com

Think you've got retirement in the bag? It's an unfortunate fact that many seniors approach retirement ill-prepared and run into financial trouble because of it. With that in mind, here are four major assumptions a large number of workers just plain get wrong.

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1. You'll only live another 15 to 20 years once you retire

Many people who retire in their mid-60s assume that they'll only need enough savings to cover another 15 to 20 years of expenses. But people are living longer these days, and while that's a positive trend in theory, it does pose certain financial challenges, especially among those who only save for a shorter retirement.

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The Social Security Administration (SSA) reports that the average male reaching 65 today can expect to live until age 84.3, while the average 65-year-old female today can expect to live until 86.6. Of course, these are just averages, and if your health is good, you might live considerably longer. In fact, the SSA estimates that one out of every four 65-year-olds today will live past age 90, and one in 10 will live past 95. When planning for retirement, don't make the mistake of selling your life expectancy short, or you'll risk running out of money at the worst possible time.

2. You'll be able to work as long as you wish

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Many people assume they'll be able to catch up on retirement savings later on in their careers, once their kids have moved out and their expenses are lower across the board. But working into your mid- to late 60s or 70s is by no means a given. In fact, a recent study by Voya Financial found that 60% of Americans end up retiring earlier than planned, whether due to job loss, health issues, or the need to care for a family member. While you may have an easier time saving money toward the tail end of your working years, when you have fewer expenses and, presumably, a higher salary, this approach could backfire if your career is unexpectedly cut short.

3. You'll automatically spend less once you retire

For years, workers have been told they'll need 70% to 80% of their previous income, on average, to pay the bills in retirement. But recent data suggests that those figures may not suffice. According to the Employee Benefit Research Institute, 46% of households wind up spending more money, not less, during their first two years of retirement. For 33% of households, this spending pattern lasts for six years. This trend is also consistent across all income levels, which means it's not just wealthy seniors bringing those numbers up.

While it's true that certain costs, like commuting, disappear in retirement, many of the pre-retirement expenses seniors face stay the same once they stop working. Take housing, for instance. More and more seniors are carrying mortgage debt into retirement, and because homes tend to require added maintenance as they age, many retirees will inevitably wind up spending more money on housing than they did before.

Furthermore, there are a few costs in particular that are more likely than not to go up in retirement, the greatest of which is healthcare. Recent data, in fact, tells us that the average healthy 65-year-old couple today will spend $377,000 on medical care in retirement. If your health is poor, that number could climb even higher. Throw in the fact that many seniors spend more on leisure to occupy their newfound free time and it's no wonder so many end up overspending.

4. Your Social Security benefits will cover all of your retirement expenses

Though not all seniors spend more money in retirement, most can't get by on just 40% of their previous income. But if you rely on Social Security in the absence of independent savings, you'll need to do just that. The SSA itself says that its monthly benefits will only suffice in replacing roughly 40% of the typical worker's pre-retirement income. For the average beneficiary today with no other income source, that's just $16,320 a year in spending money.

If you're behind on retirement savings but have a few working years left, there's still time to catch up -- you just need to be willing to prioritize savings above all else. Currently, workers 50 and over can contribute up to $24,000 annually to a 401(k) and $6,500 to an IRA. Max out that first option for three years and you'll be looking at an extra $72,000 of retirement income -- which, over a 25-year period, gives you an additional $240 a month to work with.

Many retirees run into trouble because they fail to do their research and plan ahead. Now that you know what pitfalls to look out for, you can optimize your remaining working years, ramp up your savings, and budget accurately for the future.

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