Practice Management

The Importance of Aligning Expectations and Reality

By Tom Foster

Any mechanic or automotive technician can explain the importance of keeping your car’s tires in alignment. Failure to do so may result in premature tire wear, reduced gas mileage and even trouble keeping your car on the road. It’s a problem that only becomes worse over time.

Alignment is just as important for retirement planning. A 2017 study by the LIMRA Secure Retirement Institute found that retirees were twice as likely to say their basic living expenses were higher than they anticipated than they were to find their expenses were lower than expected.1 Fewer than half indicated that their expenses were about the same as they anticipated.

The reality may be simply that many retirement savers fail to align expectations with reality by underestimating their expenses in retirement.

Financial advisors who support retirement plans can help straighten pre-retirees’ path to retirement by encouraging them to conduct a gap analysis comparing their projected income in retirement with their likely expenses. While advisors are in position to help, they can also avail themselves to resources from providers by partnering with education specialists, offering online tools or both.

What retirement plan participants may find is that retirees on average spend half of their retirement income on basic living expenses such as housing, food, utilities and clothing, according to LIMRA. Another 13 percent of retirees’ income goes to non-discretionary health and long-term care costs. Those numbers only go up over time, especially as retirees’ age and encounter health issues, the study shows.

Rising expenses for health and long-term care contribute to the LIMRA finding that four in 10 retirees reporting that those costs exceed expectations. Total projected lifetime health care premiums (Medicare Parts B and D, supplemental insurance, and dental insurance) for a healthy 65-year-old couple retiring in 2017 are expected to be $321,994 in today’s dollars ($485,246 in future dollars), according to a report by HealthView Services2, a producer of healthcare costs projection software. Adding deductibles, copays, hearing, vision, and dental cost sharing, that number grows to $404,253 in today’s dollars ($607,662 in future dollars), HealthView reports.

Those numbers can be daunting. Many retirees told LIMRA that they would manage higher-than-anticipated expenses by reducing their discretionary expenses. But not everyone may be able to do so. The lower a retiree’s income, the less money he or she is likely to have for discretionary spending.

The narrow margin that many lower-income retirees face in managing their expenses only underscores the importance of having a plan. A formal written plan that realistically projects both income and expenses in retirement can help create a solid financial planning foundation. It’s from this base that pre-retirees can then start to determine what kind of lifestyle they can afford and how that squares with what they have dreamed about.

Only then can pre-retirees understand not only how much income they will need to fund their lifestyle but how much savings they will need to generate that income. It’s an alignment of where the rubber meets the road in retirement.

Starting with a benchmark may help. For instance, MassMutual pegs a participant’s readiness for retirement on being able to replace 75 percent of his or her pre-retirement income in retirement. That figure includes both retirement savings and Social Security.

But the need for income can vary widely. Those who are satisfied with a more modest lifestyle may find they need less income while those who have champagne wishes and caviar dreams will likely need more – potentially a lot more.

Whatever a pre-retiree’s lifestyle aspirations, LIMRA found, a formal plan can make a difference: nearly 70 percent of retirees with a formal written plan say their discretionary expenses are in alignment with expectations. Sixty-one percent of retirees with an informal plan and 51 percent of those without any plan were as aligned, according to LIMRA.

Where alignment may have the biggest impact is on retirees’ mental and financial well-being. More than 60 percent of retirees who had significantly higher than expected basic living expenses disagreed with the statement, “I am confident that I will be able to live the retirement lifestyle I want.” It’s a shame that anyone’s golden years should be tarnished by worry and doubt.

Those concerns are why helping pre-retirees align their expectations with reality about their expenses and income in retirement is so important. Like a car that shimmies and shakes because it’s out of alignment, realigning retirement expectations requires an expert with special skills. It requires advisors who can help retirement plan participants and clients maintain a straight path to their retirement dreams.

E. Thomas Foster Jr. is head of strategic relationships for retirement plans for Massachusetts Mutual Life Insurance Co. (MassMutual).


1Retirement Spending, Experience vs. Expectations, LIMRA Secure Retirement Institute,

2 2017 Retirement Health Care Costs Data Report,