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Numerous variables go into every retirement projection, making it an inexact science at best. This is why it always pays to allow for some “wiggle room” when it comes to forecasting your future retirement account balance.
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Just a few wrong assumptions about your retirement can dramatically affect your results, so it pays to consider a wide range of possible outcomes. Here are some of the most dangerous assumptions about retirement that could kill your savings fast, along with suggestions as to how to avoid falling into that trap.
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You Will Live an ‘Average’ Lifespan
One of the biggest variables when it comes to outliving your money in retirement is how long you will live. Unfortunately, this is one of the least predictable variables in any retirement plan.
If you build your entire plan around an assumption that you will live an “average” lifespan, you might run out of money if you end up living a long life. While you can make some educated guesses about how long you might live based on your family history and your personal lifestyle, always factor in the possibility that you might live much longer.
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You Will Remain Healthy
According to the Bureau of Labor Statistics, seniors spend 13% of their retirement income on healthcare. The average household headed by someone at least 65 years old spent a whopping $57,818 on healthcare in 2022, the most recent year for which data is available.
If you have serious healthcare issues, this number could increase significantly, to the point that it could derail your retirement plans. Factoring in a larger-than-average budget for healthcare could help keep your retirement budget on track.
Your Expenses Will Decrease
In many cases, expenses decrease for seniors after they retire. However, that’s not an assumption on which to bank your whole retirement.
If you live in a high-cost area or plan to “live it up” in retirement, eating out often and traveling the world, it’s quite possible that your expenses will actually increase. Plan out your intended lifestyle long before you retire so that you build the appropriate expenses into your budget.
Markets Will Remain Consistent
Along with anticipated life expectancy, market returns are the most critical component of a long-term retirement projection. If you invest your account in a balanced portfolio and assume you’ll generate a consistent 7% annual return, you might have a problem if markets hit a rough patch.
