Date: February 22, 2021

How to Get Accurate and Realistic Retirement Projections

Decisions about retirement have both objective and subjective components. Generally, the objective components deal with your money – how much you’ll have and how much you’ll need. To get accurate and realistic retirement projections, you’ll also need to consider other factors, such as your age, health, debt and estate plans.

On the subjective side is deciding when to retire, where to live after retirement, and what to do with yourself in retirement. Do you have family that you want to take care of? Do you want to age in place or choose another alternative? Are you afraid of outliving your money, or not having enough for the lifestyle you want? The possibilities are endless.

The place to start is with the objective data. It’s impossible to ensure good decision-making if you start off with bad data or, even worse, no data at all. Once you understand the facts, you have the basis for making reasonable decisions.

Getting accurate projections is especially important in retirement planning for high net worth individuals, as the money coming in for retirement may be much less than you are used to receiving.


Start the conversation. Contact Heritage Capital and let us help you put together a realistic plan that works for you.


Consider Location and Income

Many folks downsize in retirement. Many also relocate for various reasons, including family, lifestyle, expenses, health, taxes, etc. You are always free to change your mind, but it’s helpful to consider the cost of various alternatives.

If you want to age in place, have you paid off your mortgage? Would you consider a reverse mortgage, which would provide you substantial monthly income?

If you want to move, do you have one or more places in mind? If so, you’ll want to explore the cost-of-living statistics of each location, along with other factors that impact your lifestyle and health. Retirement planning in Connecticut, for example, is different than retirement planning in California or Texas.

The Internet is chocked full with this kind of information. For instance, do you want to move to a retirement village that includes assisted living? Do you want to live in a downtown apartment near entertainment and culture? It’s important to research the costs of these alternatives early on to see which ones are feasible.


Choose the Age You Will Start Receiving Social Security Benefits Wisely

You can start taking your Social Security benefits as early as age 62 or as late as age 70. If you were born between 1943 and 1954, your full retirement age is 66, the age at which you are entitled to 100 percent of your annual benefit. The benefit increases by 8 percentage points for every year that you delay taking benefits up to age 70. In other words, you’ll get 108 percent if you start at age 67 and up to 132 percent by waiting until age 70.

On the other hand, you’ll receive less than your full amount if you start taking your benefit before your full retirement age. In this example, your benefit amount would be 30 percent less if starting at age 62. You won’t be eligible for your full amount until you reach age 66.

However, waiting longer isn’t necessarily the best option.

For you to understand the impact of taking or waiting on your Social Security benefits, it helps to do a little math.

Take a look at this sample breakdown report I created.

Unless you plan on living beyond age 104, you’ll collect more by taking your benefits at age 69. The example neglects adjustments due to inflation.

This isn’t to say that it’s a slam dunk that you start collecting earlier. Talk to your financial advisor about taxes, your current income and expenses, your earnings history, your actual retirement age, inflation, and spousal benefits. You might increase your annual benefit more if your current income is high enough to replace a lower-income year. At Heritage Capital, we can discuss the possibilities with you so you understand the impact of your decisions before committing to a particular starting age for taking your benefits.

For other age-related decisions about retirement, read our recent blog post: Important Retirement Ages.


Include All of Your Income in Retirement – IRAs, 401(k)s, Pensions, Etc.

Social Security (hopefully) makes up just one portion of your total retirement income. You will also need to calculate your income from all other sources to get an accurate, overall projection of how much you’ll have coming in during your retirement years.

Do you have an IRA? A workplace 401(k)? A pension? Other investments? Royalties? Trusts? Any non-qualified annuities? Perhaps you received an inheritance and are taking money out in annual installments. Or you may have decided to work at least part-time after retirement to augment your income. Consider it all to come up with your income figure and use realistic assumptions wherever possible.


Decide at What Age You Will Retire

Knowing your different cash inflows and how they will vary as you age can help you decide when you can retire, as opposed to subjective considerations about when you want to retire. The ultimate decision is yours, but by having the financial facts in front of you, you can constrain your possibilities by eliminating impossible scenarios.


Solidify Your Plans in Retirement and Project Realistic Expenses

How do you plan to spend your days in retirement? What will you need and what you will have? Consider age-related changes. For example, you may decide that you will sell your boat at age 75 or move to Arizona three years after you retire. Choose the most probable course of action and then work with your financial advisor to determine how much you’ll have, based on this objective research.


Add Inflation

As a financial advisor in Connecticut for many years, one of the biggest mistakes I see people make is overlooking inflation. Your Social Security benefits will be adjusted for inflation (perhaps inadequately), but what about your other income sources? Will you maintain some risky investments that can outpace inflation? Will you be able to afford your projected cost of living after accounting for inflation? Talk to a financial advisor if you don’t understand the true effects inflation will have on your plan.


Consider Taxes

Taxes are an important part of getting accurate and realistic projections as well. And obviously, the more money you have, the more money you can leave on the table or lose altogether. Naturally, you’d like to reduce your taxes to the minimum legally required. This includes income, inheritance, estate and property taxes. A financial advisor can discuss the options open to you to avoid unnecessary taxation.

Retirement is a critical time in your life – let your financial advisor help you make the right decisions.

Heritage Capital is a financial advisory firm located in Connecticut that has helped clients nationwide plan for retirement for more than 30 years. A high net worth retirement can be especially complicated. Contact us to see how we can help.


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Paul Schatz, President, Heritage Capital