The Wall Street Journal recently published an article in their Weekend Investor section discussing a potential problem regarding retirement planning. The authors emphasized that too many workers have unrealistic assumptions regarding their likely income in the latter stages of their career.

One of the most interesting and surprising statistics was that, for employees in the United States, average pay plateaus in the 40s, according to data provided by the Census Bureau. Although the article did not try to predict the future, one has to wonder whether the future trend will be worse.

I retired from full-time employment over 15 years ago, but while I was working, I assumed that my salary would keep increasing until I retired. At the bank where I worked, the official retirement age was 65. I had planned to retire at 60, although my pension would have been lower. However, when I was in my 50s, it become obvious that the bank did not want employees to work until 65. The bank was continually reducing staff through layoffs, and regularly offering early retirement packages to long-term employees. I accepted an early retirement plan at age 58 that was acceptable to me, but only because I was going to retire at 60 anyway. Just because you might want to work until 65 doesn't mean that your employer will allow you to. And how likely is it that you will continue to receive generous pay increases as you reach middle age?

Some financial counselors are now advising their clients to be more conservative. For example, Alfest Personal Wealth Management, a respected counseling firm in New York City, advises clients to assume that the only salary increases they will get are cost-of-living adjustments.

This is something to keep in mind if you use a retirement-planning software program. A problem with some of these programs is that they make unrealistic assumptions regarding salary increases until retirement age, as well as about inflation rates with respect to conservative investments. If you do use this software, make sure you understand what assumptions are being made, and adjust your retirement plan accordingly.

The Wall Street Journal article pointed out that, although the recession may have exacerbated the trend toward early peaking of salaries, the situation is not new. In their IRS filings for pension plans 10 years ago, several large companies, including Boeing, Sears and Xerox, assumed low increases in salaries as employees entered middle age. Unfortunately, it doesn't seem likely that current conditions in the labor market will help the situation. Leading economists are predicting that the unemployment rate will remain high for the next few years. Union membership is falling, and that will not help raise wages. In the current labor market, employers will be able to limit employee compensation.

What does this mean for employees who recognize these factors? From a retirement planning perspective, you should re-evaluate whether the assumptions you have made are realistic. For example ask the following questions.

-- Will you be able to work until 65?

-- Can you expect regular salary increases until you retire?

-- Are you saving enough money now to maintain your standard of living in retirement?

-- Do you have a fallback plan in case you lose your job?

Retirement planning is not easy, especially in the current economic environment.

It is especially difficult to do when you do not have complete control over your employment stability, and when there is so much uncertainty in the financial markets. However, it is crucial to examine the assumptions you have made regarding your financial plans on an ongoing basis, and revise your plans as necessary.

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(c) 2011 Elliot Raphaelson, Tribune Media Services