Congratulations if you’re one of the many Americans responsible enough to formulate a comprehensive retirement plan. You’re working hard, making sound investments, and it looks like you are well on your way to a financially secure future.
But what if, after reaching the age at which you plan on retiring, you realize you failed to account for a critical factor that could cause you to postpone your retirement for another 5 years? Yikes. You want to be confident in your future, so make sure you’ve considered every possibility—including the following items that could drastically influence your retirement goals. Keep in mind that all four elements will impact each person differently.
Biological age versus chronological age
While you might plan on retiring at the ripe age of 65, it’s possible that your physical health is closer to that of a 55-year-old. Sure, this is great news since you’re going to live longer, but your increased longevity means you’ll have to stretch your retirement savings further. Modern medicine and a healthier lifestyle mean you’ll need to plan for a longer retirement, or else you could run out of money while you still have plenty of life.
Paying for long-term care
No matter how healthy we may be in our youth, over half of Americans age 65 or older will require long-term care during their lifetime and pay an average of $138,000 for it1. This could be the result of a number of health issues, whether it be dementia, a stroke, or a fall. While you could be fortunate and live to an old age without needing assistance, it would be a good idea to dedicate some of your savings to long-term care expenses. While long-term care insurance is available, it’s likely too expensive for individuals with an income lower than $300,000 a year.
Inflation
While it might seem obvious or insignificant, inflation is an important reality to include in your retirement calculations. While it’s usually only around 2-3 percent a year, you can imagine the cumulative effect this rate has over a 30-year retirement. According to The Motley Fool, a monthly retirement expense of $3,000 will increase to $4,458 in 20 years at a 2 percent inflation rate. This can lead to a dramatic change in a retiree’s lifestyle. If you consider increased inflation costs, you’ll have a more realistic understanding of how far your retirement savings will go in the future.
What will your retirement include?
Perhaps the most overlooked aspect of a retirement plan is the lifestyle you expect to lead once you’re retired. It might be difficult to know what you will do in your retirement early in your career, but the sooner you know what your retirement will look like, the more prepared you can be. Once you have an idea of where you’re going to live and what kind of activities you’ll be doing, you can estimate your cost of living and put a plan in place to make it a reality.
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- https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-americans-risks-and-financing-research-brief
- https://www.thinkadvisor.com/2019/03/22/moshe-milevsky-are-you-as-old-as-you-think-you-are/
- https://www.kiplinger.com/article/retirement/T036-C032-S014-is-something-big-missing-from-your-retirement-plan.html
- https://www.fool.com/retirement/2018/03/11/3-mistakes-that-could-derail-your-retirement.aspx
