When planning for your financial future assumptions are one of the most critical factors in the process. Making poor assumptions can be the reason you miss out on retiring early or run out of money.

Here are some common assumptions that your advisor needs to review when building your initial financial plan.

Rate of Return
While the past decade has been a great time to be in the stock market, future return assumptions need to be moderated.

For our financial plans, forecasted return can vary from 4.40% – 8.66% depending on your current allocation. Generally, the more risk you take the higher expected return.

Estimating inflation accurately in an important aspect when developing a financial plan. The goal is to maintain your desired spending level throughout your retirement.

If you currently spend $100,000, how much will you need to maintain the same lifestyle twenty years from now? In this scenario, your expected annual cash flow need increased from $100,000 to $160,000. (Assuming 2.40% inflation)

Retirement & Life Expectancy
Outliving your money is one of the most common and significant fears people have about their retirement. Estimating the amount of years you will be retired is a key aspect to creating a successful financial plan.

For our initial plan, we set the retirement age to 65 and target life expectancy of 100. Based on our clients’ goals we will adjust these figures.

Bottom Line
Any type of plan using historical long-term averages is likely to paint an overly optimistic picture for investors. Because our clients rely on these long-term assumptions when making life and career decisions it is important we use the most accurate and up to date information.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.