5 Retirement Fantasies Leaving Americans Short by Hundreds of Thousands

Retirement planning may look successful on paper, but sometimes those visions don’t match reality.

Financial professionals say that some of the most common retirement beliefs can create significant gaps between what people expect retirement to cost and what it actually does.

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Here are five retirement fantasies leaving retirees short.

1. Thinking Expenses Will Shrink

One of the most common retirement assumptions is that spending naturally falls once work ends. Instead, it’s more common for retirees to shift where they spend their money, according to Andrew Gosselin, a certified public accountant (CPA) at Save My Cent.

"Housing costs continue to be a significant expense, and so do rising healthcare costs,” he said, adding that hobbies and travel often add up, too.

Jonathan Ness, a CPA and founder of Know Money, Yes Money, said not budgeting enough for medical costs is a big one. Also, there can still be surprise expenses. For instance, what happens if retirees have to drop $12,000 on a new AC unit or buy a different car? he asked.

On the healthcare side of things, John Enwere, CEO at Caringene, said this assumption of decreasing costs is especially problematic "in the context of home care," where "the reverse seems to be true."

2. Thinking Healthcare and Long-Term Care Costs Will Be Low

Many retirement projections underestimate how quickly healthcare expenses can grow over time.

This is partly because healthy retirees often “think they are healthier than they actually are," Enwere said. Yet most retirees will gradually require some form of assistance, whether that’s transportation, increased medication costs or assisted living down the road.

While Ness said it’s natural to assume 3% inflation, “for healthcare costs, I'd double this inflation rate, to be a little safer. Medical costs, housing, and college costs have all risen faster than inflation over the last forty years."

3. Assuming Social Security Will Cover More Than It Can

Many workers also overestimate how much of their retirement lifestyle Social Security can support.

"Social Security was designed to complement retirement income, not to replace an individual's working wage," Gosselin explained.

Retirees who plan to use Social Security as their sole income source in retirement "will likely have a lower standard of living," Gosselin added.

Ness also cautioned younger workers, "I wouldn't recommend counting on Social Security to be there in its current form for anyone under 55."

4. Ignoring Longevity and Market Risk

Americans are also living longer than previous generations, which means retirement savings must last longer as well. At the same time, investment returns rarely follow the smooth upward path many retirement calculators assume.

"Most projections of retirement income assume consistent, above average investment returns. However, this rarely occurs," Gosselin said.

These overblown projections fail to consider market volatility and prolonged downturns, he explained, setting retirees up for significant disappointment and budget cuts.

5. Not Getting Out of Debt

Debt can make retirement even more expensive than many people realize. Ness noted that carrying debt into retirement dramatically increases the amount of savings needed to retire comfortably.

In other words, he explained, "If you're in a 15% bracket, having a $2,000 mortgage payment means you need $2,353 coming in to pay 15% taxes. Annualize that and multiply by 25, and you need $706,000 more to retire."

He stressed that retirees should aim to be out of debt as much as possible before entering retirement.

Overall, retirees should stress-test retirement plans against these realities today to prevent costly surprises decades from now.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

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