3 Ways to Avoid Undercutting Your Retirement Strategy

The formula for retirement planning seems simple enough. Choose your target number, invest wisely and save consistently. Unfortunately, many Americans find themselves missing the mark because of one critical mistake -- underestimating their retirement reality.

A new survey from Fidelity emphasizes just how shortsighted Americans are when it comes to their future retirement security. Seventy-four percent of respondents underestimated the amount of income professionals recommend having saved for the future. Thirty-eight percent miscalculated how long they'd need their money to last, while 69 percent missed the mark on what their biggest expenses would be in retirement.

If you're concerned that you may be falling behind despite your best efforts to prepare for retirement, a thorough evaluation of your savings plan might be in order.

Compare your current goals to future spending. Having a set retirement goal in mind is helpful but you have to ensure that it aligns with how you plan to spend your savings down the line.

"The most important first step in determining how much you'll need in retirement is to define retirement," says Sean Pearson, a financial advisor with Ameriprise Financial Services in Conshohocken, Pennsylvania.

Pearson says considering things like how long you want to work, whether you'll work part time and whether your retirement lifestyle involves travel or exploring new hobbies can give you a framework within which to operate.

[See: 11 Tips for the Sandwich Generation: Paying for College and Retirement.]

John H. Campbell, vice president of wealth planning with The Private Client Reserve of U.S. Bank, recommends taking stock of your current cash flow needs.

"Studies have shown that the desire of many retirees, and those contemplating retirement, is to maintain their pre-retirement lifestyle," Campbell says.

Once you understand how your basic living expenses, taxes and discretionary spending add up, you can adjust for those expenses that you anticipate being reduced or eliminated in retirement, as well as any new expenses you may have to pay. Then, you can compare that figure to any projected sources of income you expect to have, taking into account your estimated tax liability in retirement.

This calculation, says Campbell, can help you determine whether your savings target will result in a shortfall or a surplus.

Mike Kojonen, owner of Minneapolis-based Principal Preservation Services, says it's important to cover all the bases when planning your retirement budget. Too often, he says, savers neglect to include little things like car repairs, or big things, like the impact of rising prices.

"If you have a pension, most don't have a cost-of-living adjustment and if they do, it falls short of what inflation is," Kojonen says.

A 2016 LIMRA report found that an inflation rate of just 2 percent can erode nearly $74,000 in retirees' spending power over a 20-year period. Understanding how inflation can diminish your ability to cover expenses in retirement is crucial for forming a well-rounded picture of how far your dollars are likely to go.

Rethink your savings rate. If you've crunched the numbers and realized that you've underestimated what you'll need to save, your next move is figuring out how to turn it around.

Erik Carter, a certified financial planner with Financial Finesse in El Segundo, California, says increasing your savings rate is a priority, even if you have to do so incrementally.

"Many retirement plans have a contribution rate escalator feature that can increase your contributions over time automatically," Carter says.

Carter says that if raising your savings rate still results in having less money than you need to retire, it's time to explore other options. He says that taking a more aggressive stance with investments, postponing retirement, working longer or looking to alternative income sources, such as a reverse mortgage or annuity, are possible remedies savers should consider.

Jeff Warnkin, a certified financial planner with The JL Smith Group in Avon, Ohio, recommends a multi-pronged investment approach for playing catch up when your savings rate is lagging.

"Instead of thinking about all your money in one big bucket, divide your assets up into time horizons -- money that you need now, money that you'll need soon and money that you won't need to tap into for 10 years or more down the road," Warnkin says.

[See: 8 Great Part-Time Jobs for Retirees.]

Warnkin advises keeping the money in the short-term bucket in safe but liquid investments. The middle bucket would be invested more conservatively and be designed to generate income in the early years of retirement. The third bucket would be reserved for providing long-term growth.

Plan for longevity. According to the Social Security Administration, a man turning 65 today can expect to live until age 84 while women have an average life expectancy of nearly 87. If you haven't given much thought to how long you'll be enjoying your retirement, it's critical to address the issue sooner rather than later.

"Longer life expectancies have a huge impact when calculating how much savings you'll need to see you through retirement," says Kathleen Grace, managing director at United Capital in Boca Raton, Florida.

Taking life expectancy into account is particularly important if you're concerned about health care costs draining your savings.

"Health care can be and often is the largest and most burdensome cost, placing many families into financial ruin," Grace says, but purchasing a long-term care insurance policy can help prevent catastrophic losses.

The best time to buy long-term care coverage? When you're still young and in good health.

Planning for longevity also matters for Social Security purposes, says Sandy Young, founder of SY Financial Group in Hampstead, Maryland.

"People tend to minimize the value of Social Security planning," Young says, and delaying benefits can be an effective way to boost your retirement income.

"From age 66 to age 70, you have an 8 percent guaranteed increase in benefits for each year you delay," Young says, which may surpass the returns your investments are generating year to year.

Kojonen says investors need to understand which investment strategies are best suited for their nonworking years.

"Investors need to understand that their growth years are mostly behind them. Once in retirement, they need to make a mental shift from accumulation to preservation," Kojonen says. "Attempting to make big gains in high-risk investments could result in losses which could severely alter your retirement lifestyle."

For Warnkin, proper planning for longevity is more important than ever as longer life expectancies become the norm.

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"You need to go into retirement with a game plan. Often, people with go into retirement with a "you only live once" attitude and that can get them in trouble," Warnkin says. "With longer life expectancies, you have to be careful and develop a budget that won't bankrupt you."

Rebecca Lake is a freelance Investing & Retirement reporter at U.S. News & World Report. She's been reporting on personal finance, investing and small business for nearly a decade and her work has been featured on The Huffington Post, Business Insider, CBS News and Investopedia. You can connect with her on LinkedIn and Twitter or email her at rlake0836@gmail.com.