4 dangerous assumptions that could hurt your retirement

Here are four dangerous assumptions that could hurt your retirement.

Assumption #1: Stock and bond market returns will be robust

If you're estimating what your portfolio will return over your holding period, think twice before plugging in strong returns.

Stocks' long-term gains have been pretty robust. But there have been stretches in market history when returns have been lower; in the 2000s, for example, the S&P 500 actually lost money on an annualized basis.

That was because stocks were pricey at the decade's outset. Though stock prices aren't in Armageddon territory now, they're also not cheap.

What to do instead: Lower your market-return projections and your planned withdrawal rate. Prudent investors should ratchet down their market-return projections somewhat, just to be safe.

Morningstar research found that 3.7% is a safe starting withdrawal percentage on a balanced portfolio over 30 years. But there are also ways to lift that number, including employing some variability in spending.

The past few years illustrate the peril of assuming that consumer prices will remain in a steady state. When inflation rears its head, retirees need to withdraw more than anticipated from their portfolios just to maintain their standards of living.

What to do instead: Consider inflation hedges in your retirement portfolio. Use longer-term inflation numbers to help guide planning decisions: 3% is a reasonable starting point. And to the extent that you can, customize your inflation forecast based on your actual consumption baskets. For example, allotting more for healthcare costs and less for spending on housing.

The possibility that inflation could run higher during your retirement also argues for laying in inflation hedges in your retirement portfolio. And it argues against holding too much in fixed-rate investments whose return potential is negative once inflation is factored in.

Assumption #3: You will work past age 65

The financial merits of working longer are irrefutable: continued portfolio contributions, delayed withdrawals, and delayed Social Security filing. So, it comes as no surprise that older adults are pushing back their planned retirement dates.

What to do instead: Be ready to fall back on other measures. While working longer can deliver a three-fer for your retirement plan, it's a mistake to assume that you'll be able to do so. If you've run the numbers and it looks like you'll fall short, you can plan to work longer while also pursuing other measures, such as making lifestyle changes and increasing your savings rate. At a minimum, allow for the possibility that your income may not be as high as it was in your peak earnings years.

Assumption #4: You will receive an inheritance

There can be a disconnect between what children expect to receive and their eventual windfalls. Increasing longevity, combined with long-term-care needs and costs, means that even parents who intend for their children to inherit assets from them may not be able to.

Adult children who expect an inheritance that doesn't materialize may be inclined to overspend and under save during their peak earning years. And by the time their parents pass away and don't leave them the windfall they expected, it could be too late to make up for the shortfall.

What to do instead: Communicate about inheritances early. If you're incorporating an expected inheritance into your retirement plan, it's wise to begin communicating about that topic as soon as possible.