While $1 million is sometimes cited as the ideal number for retirement savings, this assumes a one-size-fits-all approach to retirement planning. Everyone’s retirement goals are unique, and preparing for retirement might not be as simple as saving a certain amount at all. It’s worth taking a more in-depth look at your finances and future needs to see if you have enough saved for retirement and what retirement costs to factor into your plan.
After saving for many years, you will finally start to draw down those savings to fund retirement and must make them last for the rest of your life. This is difficult considering that we’re living longer than ever and often want to maintain our pre-retirement lifestyle in retirement. However, there are options for protecting against longevity risk. Pension or no pension, have a plan for creating retirement income for life. This plan can include a reliable income source that isn’t affected by market drops and continues to pay out for as long as you live. There is also an option that continues to pay out for the rest of a spouse’s life after the first spouse’s passing.
Factor in Inflation
Have you factored inflation into your retirement plan? Let’s say you start retirement with a $1 million nest egg. You know what $1 million is worth now, but what about in 20 years? After 20 years with a 2% inflation rate (the Fed’s “target” interest rate), $1,000,000 would have the buying power of only $672,971. Inflation erodes the value of savings and will continue to do so after you retire. The Fed said that “inflation has risen, largely reflecting transitory factors” and seemed unconcerned about the potential for higher inflation and the fact that March consumer prices rose 2.6%.
Potential for Long-Term Care Costs
An average 65-year-old couple retiring today will need an estimated $295,000 to cover their healthcare costs, and that doesn’t even include long-term care costs. Between rising healthcare costs and the fact that an estimated 70% of today’s 65-year-olds will need long-term care at some point, overall costs could be much higher. Long-term care costs can be staggering, and Medicare doesn’t necessarily cover them. In 2021, the median yearly cost for an in-home health aide was $54,912, and the median yearly cost for a private room in a nursing home was $105,850.
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Investment advisory and financial planning services offered through Advisory Alpha, LLC, a Registered Investment Advisor. Insurance, Consulting, and Education services offered through Gosline Retirement Planning Inc. Gosline Retirement Planning is a separate and unaffiliated entity from Advisory Alpha. While tax and legal issues may be discussed in the general course of financial and investment planning Advisory Alpha does not provide tax or legal advice. Please consult with your tax or legal professional prior to making decisions relative to these issues.
The information presented is hypothetical and for illustrative purposes only and should not be used as the primary basis for an investment decision. Please consult a financial advisor to discuss your individual situation prior to making any investment decision.