Successful retirement planning is part art, part science.
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While there are plenty of calculators available to show you how much money you’ll theoretically have by the time you retire, there are numerous variables involved that can be hard to predict. You can make educated guesses as to what the rate of inflation will be from year to year, or what your investment return will be, there’s no way of knowing these with certainty.
Here’s a look at some of the major factors that may prevent you from being able to afford retirement in 2025.
Inflation Has Significantly Boosted Costs
Americans have been spoiled for decades by the good job the Federal Reserve has done in keeping inflation under control.
From 1992 through 2020, the annual change in the rate of inflation was consistently 3.8% or lower, and in many years, it was below 1%.
That all changed from 2020 through 2023, when the inflation rate hit 8%, 4.1% and 3.2%, respectively. While that might not sound like that much, there’s no denying that the cost of daily living has risen substantially since the pandemic.
If your retirement plan was built on a long-term average of 3% inflation, for example, you might find yourself coming up short if you’re looking to retire soon.
Consider just how much food costs alone have risen. According to the New York Times, the cost of eggs has more than doubled over the past four years, while cereals and bakery products are up 25% and fruits and vegetables are up about 14%.
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You Don’t Have Enough Saved
This is likely the single biggest reason why you might not be able to afford retirement in 2025, and it’s especially true if you’re planning on retiring early.
It might not feel like too big a deal if you plan to retire at, say, 60 instead of 65, but those five additional years of earning — and giving your investment a chance to rise — can play a huge role in whether or not you can really afford to retire.
But even if you’re 65, if you’ve had a rough go of it with your investment portfolio, you might still have to wait a few more years to earn enough to comfortably retire.
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You Are Claiming Social Security Too Early
The Social Security Administration regularly updates the amount you can expect to receive in terms of retirement benefits. However, the most-quoted figure is the amount you’ll receive at your full retirement age, which is 67 for those born in 1960 or later.
If you’ve heard that you can claim Social Security at age 62, you should be prepared for the fact that your full retirement benefit will drop by about 30%. If you’re expecting a $2,000 benefit, for example, you’re likely to only get about $1,400 if you file at age 62.
This could be the difference between being able to afford retirement or not.
You Don’t Qualify for Medicare Yet
Health insurance can be expensive, particularly for older Americans. Not having insurance can be even worse.
As Medicare doesn’t kick in until age 65, if you’re planning on retiring before that, you’ll have to budget for these potentially high expenses, the cost of which could make earlier retirement unaffordable.
You’re Still in Debt
Debt is the single biggest curse when it comes to financial planning. Every dollar that you have to assign to debt payments is another dollar that you can’t invest or live off if you’re already retired.
Even worse, if it’s credit card debt, you’re likely looking at interest rates of 20% or more. This means that your debt can rapidly spiral out of control, rising at a time when your income is likely fixed.
If you’re struggling to find money to pay off your debt, retiring is not usually the optimal strategy.
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Steps You Can Take
Even if you’re not quite prepared for retirement in 2025, it doesn’t mean it’s an unachievable goal. The further you are away from your retirement date, the more opportunity you have to prepare yourself.
If you still envision a retirement just a year or two down the road, here are some things you can do to prepare:
- Pay off all of your consumer debt
- Build an emergency fund
- Max out your retirement accounts, to the best of your ability
- Hire a financial advisor, if you need help getting the most out of your investments or retirement planning
- Wait as long as you can to claim Social Security
- Recalibrate your budget to include realistic costs
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This article originally appeared on GOBankingRates.com: 5 Reasons You Won’t Be Able To Afford Retirement in 2025
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