Be Wary of These Retirement Assumptions

Investors make many assumptions when it comes to retirement , and it pays to consider all the things you may take as assumed. These assumptions span from operational to investment selection, and here are a few to be aware of:

The Basics

There are many aspects of your investments that are not intuitive, and some of them operational in nature, but can have very negative effects if not understood. One such example we recently learned of is an investor was changing advisors and assumed in order to change advisors, their entire portfolio needed to be sold to cash. While this may sound quite odd to many, there are many investors that lack these basics, and if the investor had sold their portfolio out, the problems of taxes and losses are significant. Thankfully, a family member stopped them, but the family member works in this industry. But not everyone has a family member in the industry.


A more commonly misunderstood issue is when transferring accounts to a new brokerage account, not all securities necessarily move over. This is absolutely true if you have investments that were created by the brokerage account such as partnerships or annuities. These proprietary investments must either remain at the current brokerage, meaning you have two brokerage relationships now, or sold. Again, a “forced” sale can have negative implications. The non-portability of assets, especially in a retirement account, is something many investors are not aware of.

A Longer Lifespan?

People assume they will live a certain length of time when planning for retirement. But what if modern medicine in the next few years greatly increases your lifespan to age 95 or 100 or more? It is no longer prudent to assume you won’t live this long, as technical and medical advances continue to increase at advancing rates.As written in this past article on viewing retirement as a business having a sober view of your retirement and game-planning out various scenarios such as life expectancy can be extremely beneficial. Businesses plan for all kinds of contingencies, so should you for your retirement.

More Stock than Bonds as You Age?

Conventional wisdom states as you age, you should decrease your equity levels and increase your fixed income. However, this may be a mistake for a growing number of people. Wade Pfau of the American College has observed that we now live in an unusual time in that both stock market valuations have never been this high while at the same time interest rates being at historic lows, and has further pointed to the research of Bill Bengen that the stock portion of a portfolio should be closer to 75% to increase the odds of not running out of money in retirement, while enjoying the highest possible lifestyle.Alternative equity and fixed income splits are being floated such as 70/30 or even 80% to equities in certain scenarios from such noted financial thinkers like Michael Kitces. The concept is that equities deliver a better return over long periods than bonds and if you need to retire right at the time of a major correction you are pulling money at the bottom, locking in losses. By staying more in equities and dollar cost averaging all along the way, you are buying when prices of stocks are low, and will enjoy the eventual higher prices and resultant larger portfolio when the market comes back.There is an old adage about making assumptions, and it applies to retirement as well. Always consult with an expert such as a financial advisor before taking a substantive action with your retirement.Related: Why More Investors Believe in Unicorns