They say age is just a number, but the same probably shouldn’t be said of retirement preparation. While $1 million may seem like a substantial nest egg, it may no longer be enough if you want to retire comfortably. In the past, many people set a goal to have a million dollars to retire on, but in today’s world it may not get you where you need to be for retirement. Healthcare costs and inflation are just a few of the retirement expenses that can eat up savings. Everyone’s retirement goals and situation are unique, and preparing for retirement might not be as simple as saving for a specific number at all. It’s worth taking a more in depth look at your finances and future needs to make sure you’re saving enough for retirement, and creating a comprehensive plan that fits you.
As Americans continue to live longer than previous generations, their retirement savings have to stretch further. It’s important to consider that health care costs tend to rise as we age. According to research from Fidelity Investments, The average 65-year-old couple retiring now can expect to spend roughly $280,000 of healthcare alone during retirement, which is up 75% from 2002. As Medicare most likely won’t cover all of your expenses, it’s important to anticipate a high cost of healthcare as you age. Health Savings Accounts, long-term care insurance, and Medicare Advantage plans are ways you can save for healthcare costs in retirement.
You know what $1 million is worth now, but what about in 20 years? Inflation erodes the value of savings, and will continue to do so after you retire as you start relying more on your savings for income. On average, the inflation rate is about 2.5% a year, and can spike. To get a sense of how you should save, make a retirement budget that includes how much you need to cover expenses and funds for leisure activities you’re looking forward to, multiply it by 25-30, and then adjust for inflation. Unfortunately, the rising cost of living could leave you with effectively half the money you thought you had saved from your retirement years. Low-risk investments, bonds, and annuities are some of the ways you can protect against inflation in retirement.
You can’t predict how retirement could be different in 2030, but you can create a solid plan for retirement. While saving for retirement is necessary, it’s not the only thing you need to do to prepare. High healthcare costs and inflation can eat up your savings in retirement, possibly making $1 million insufficient. A comprehensive plan looks beyond an arbitrary number to your unique retirement goals and situation.
At Zinnia Wealth Management, we will work with you to create a comprehensive retirement plan that takes costs in retirement into account.