Mar 24, 2017 By Gary Boatman for The 4 min read

All retirement planning should start with income planning.

If your income does not provide the needed money, your retirement will be less than desired. Social Security is one part of this. Some people are fortunate enough to receive a pension. Most people today have to depend on 401(k)s and IRAs to provide retirement income. This week, we are going to discuss how expectations in the stock market can affect your retirement plans.

Since the last stock market crash in 2008, the eight-year bull market has sent the S&P 500 up 300 percent. This is much better than the historic norm. This has created a new standard in many people’s minds. The problem is, it probably cannot continue at this level.

A recent survey by BlackRock found that 80 percent of workers believe that market returns will continue to match or exceed these recent returns. That is a 19.5 percent annualized return. Many market analysts think that is a pipe dream.

The last eight years have been nearly double the long-term norm going back to 1926. A group of major investment firms, including BlackRock, BMO and AQR, think the next 10 years will be less than half of the 10-year average or less than 5 percent.

It could be even worse. Research Affiliates, whose strategies are used to manage more than $165 billion, think it will be much worse. They predict 10-year return averages for different asset classes. They believe the S&P 500 adjusted for inflation will gain only 0.7 percent a year over the next decade. Bonds are not going to help your portfolio either. The yield for government bonds is a good projector of rates for the next 10 years. The current 2.5 percent yield for US bonds is about 2 percent less than the annualized rate of return for the last 15 years. We have discussed in previous columns how bond values go down when interest rate rise. There have also been more indications that the FED may begin selling some of the bonds they bought during Quantitative Easing. This will put even more pressure on bond valuations.

Many people receiving a pension will also be affected by a lower earning stock market. This is because pension managers project expected returns when calculating the amount of money that must be allocated to provide promised benefits. Unlike a 401(k), the company, and not the individual, are responsible for fund performance. If they expect returns that are not realized, there will not be enough to pay promised benefits. If they cannot earn a high enough return, they must get the company or government agency to provide more capital.

Don’t ruin your retirement by having false expectations. It may require you to save more, work longer or reduce your retirement agenda. Short changing your saving will not be made up by huge stock market gains. You also might have to look at alternative asset allocation. Some newer financial options roll up and allow you to take a lifetime income. They may require less investment to achieve the same income. Also, international markets may provide a better return than domestic markets over the next few years. This is because they are not priced as high as ours.

You will be OK if you have the correct plan. It is likely to be very different than what you have used for the last eight years.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.