Planning for retirement is an inherently tricky thing to do. Countless variables, from your standard of living to your own longevity, can all affect how long your nest egg will actually last.
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But there are a few common “retirement spoilers” that you can and should prepare for so that you can avoid any financial landmines after you retire. Here are five of the big variables that could work against you in retirement, and how to prepare for them.
Inflation
One of the most commonly overlooked obstacles when it comes to retirement planning is inflation. While Americans have mostly dealt with very low inflation rates over the past 40 years — barring the brief spike to 9% in mid-2022 — even low rates of inflation can greatly increase costs over a full retirement.
With inflation at just 3%, for example, prices will double in roughly 24 years. This means that if you are 41 now and plan to retire at age 65, prices will double by the time you get there. If inflation tops 3%, prices would rise even faster. What that means if you’re planning to retire with a $1 million nest egg is that you have to factor in that in 24 years, that amount will only buy about as much as $500,000 today.
Remember to factor in inflation after you retire as well. Ignore retirement projections that suggest you can live off a $1 million nest egg for 25 years by simply withdrawing $40,000 per year. In reality, that $40,000 will be effectively worth $20,000 or less by the end of your retirement. The net result is that you’d end up with a decreasing quality of life every year that you’re retired — unless you prepare for it by beefing up your savings and investment plans.
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Health Issues
One of the most unpredictable variables when it comes to retirement planning is your healthcare costs. There’s no way of knowing if you’re going to need long-term care or have other major expenses when you retire — or even before — so it pays to plan ahead the best that you can.
Good insurance supplemented with health savings accounts is a good start, but you should also mentally prepare for the fact that healthcare could play a big role in how long your nest egg will last.
Social Security Cuts
There is still plenty of time for legislators to make changes, but as of right now, Social Security is facing cuts sometime in the mid-2030s. According to the most recent report of the Social Security Trustees, the program will only be able to pay out 80% of expected benefits by 2034 unless changes are made.
This means if you are planning on your current projected payout to cover a portion of your retirement expenses, you might have to dial down your expectations.
Divorce
No one plans to get divorced when they get married, but for 40% to 50% of those getting married the first time, it’s a reality. The numbers are even higher for second marriages.
From a financial perspective, divorces can be devastating, taking years to recover from. If you’re planning to retire at 65, for example, you might have to wait until 68 or 70 if you get divorced, particularly late in life.
Your Kids (or Parents) Need Financial Support
Financial plans are generally personal in nature, focused on a single person or perhaps a couple. But if other family members end up relying on you for financial support, it could throw your entire financial picture into disarray.
Unexpected financial needs can come from both younger and older generations, whether it’s your children who are struggling in life and asking for help or your elderly parents who need additional money for healthcare and living expenses. Either way, you might end up with more drains on your finances than you imagine, potentially delaying your plans to retire in the next decade.
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This article originally appeared on GOBankingRates.com: 5 Things That Could Spoil Your Plans To Retire in the Next Decade
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