Image: Mature couple calculating expenses © Abel Mitja Varela, the Agency Collection, Getty Images

Effective retirement planning starts with making the right assumptions. If we hope to be on the mark when we retire, we need to make accurate estimations about important retirement variables, including how long we will live and how much we need to save. Once we have reasonable estimates for these, we can take the appropriate action to help ensure we will be ready for retirement. If we do not plan ahead or if we make erroneous assumptions, the quality of the retirement life we hope to live can be in jeopardy.

Sometimes despite our best efforts we make mistakes in our calculations for retirement, and we are forced to live with the consequences. But we can greatly help our cause if we are careful to avoid these glaring retirement miscalculations:

1. Underestimating the length of retirement. Average life spans continue to increase, with American males adding almost two years each decade and females living about 1.5 years longer per decade. If you are a 65-year-old U.S. male, you now have a 40 percent chance of living to 85. Females have even better odds, with a 50 percent chance of getting to 85. We all want to live long, productive and inspiring lives for as long as we can. But if our plans for retirement do not take into account the likely increase in longevity, we could find ourselves out of resources with more time still ahead.

To prepare for the possibility of an extended retirement, we need to make financial calculations based on a longer time frame to insure there will always be funds available. If you are able to delay claiming your Social Security payments, you can increase the monthly amount you will receive later on in life. Try to view Social Security as an insurance program that will protect you in extreme old age. If you retire too soon you will get smaller Social Security checks every month, and you will be drawing from your retirement savings over a longer period of time. It may sound good to get out of a stressful work situation as soon as you can, but be careful to weigh the full impact of early retirement on your long-term lifestyle.

2. Living beyond your means. After decades of working, everyone deserves a few expensive meals and extravagant travel adventures. Some people may be fortunate enough to spend freely in retirement, but most will not. The people who spend extravagantly during the early days of retirement could find themselves in dire financial straits as their retirement years continue to roll on. Living with a “why wait when tomorrow may never come” attitude is a mistake, unless you actually have unlimited funds.

A better motto for most of us is to live beneath our means. Rather than spend money like it is burning a hole in our pockets, spend less and savor the positive balance in your bank account at the end of the day. Calculate what your expenses are, and live within a reasonable budget. By living a more moderate lifestyle that is within or beneath your financial means, your savings will stretch much farther and you will reduce the risk of outliving your savings.

3. Following investment advice that isn't right for you. The financial market is a challenging arena, even for experts who dedicate their lives to it. Having accurate information is no guarantee you will put your money in the right place at the right time. And investment advice that is good for one person may be entirely inappropriate for the next. The best investment vehicle depends on your individual situation and requirements, the level of risk you can comfortably assume, the purpose of the investment, the amount of money you are considering investing, and the number of years you have for the investment to grow. And sitting safely on the sidelines is not a good option either, because inflation can eat up your purchasing power.

If you are not a financial guru or interested in becoming one, a good way to go is to work with a qualified financial planner who has your best interests at heart. You can start with recommendations from family and friends. Make sure your adviser understands everything about your specific situation and goals. A red flag is someone pushing a specific investment vehicle before truly understanding your goals. Good financial planners understand the relationship between fees and performance and will do everything in their power to keep them as low as possible without sacrificing returns. Some good advice from a reputable adviser can go a long way toward helping you make better investment decisions.

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