Take a moment and think about how much savings you’ll need in retirement.
Write that number down.
Now here’s a reality check: That number is probably low.
Not because of your math skills, but because most people underestimate what their costs will be in three critical ways.
A new study found that 37% of retirees say their overall retirement cost estimates turned out to be low.
And when it comes to healthcare, 44% of retirees said they’re facing higherx costs than they expected. (Source: 2018 Retirement Confidence Survey by Employee Benefit Research Institute)
Three Ways You’re Probably Underestimating Your Retirement Expenses…
#1. Assuming you’ll spend less in retirement than when working
The majority of people have never really sat down and calculated what they’ll need every month. You need to be comprehensive in listing out all expenses. And keep in mind you’ll typically spend more in the early years of retirement when you’re likely to be more active.
Would you like to travel? Enjoy hobbies? Visit grandkids? Add those costs in, too, because you aren’t working hard all your life to have to scrimp and sacrifice in retirement, are you?
Then throw in those major and often unexpected expenses that most people forget to account for, like a car repair, major dental work, a home remodel, needing to help out a child, a roof or major appliance that needs to be replaced… the list goes on and on, doesn’t it?
#2. Underestimating the impact of inflation
We’ve been the beneficiaries of historically low inflation rates in recent years. It’s easy to forget that inflation has been a lot higher over the years – in some years it’s been 10% a year and even higher.
But even low rates of inflation eat away at the value of your savings.
From 1913 to 2013, inflation averaged 3.22% a year, so factor in at least 3% inflation per year – 4% if you want to be on the safe side. (And that’s the government’s “official” calculation, which many believe to be low.)
Scary fact: If inflation averages just 3% per year, it will swallow more than $117,000 of the average Social Security benefit over 20 years, according to the LIMRA Secure Retirement Institute!
#3: Underestimating health care expenses in retirement
Out-of-pocket medical expenses in retirement is an area where many people are significantly underestimating their costs. And many assume most costs will be covered by Medicare, which is not true.
A 65-year-old couple retiring now will need $275,000 to cover out-of-pocket health care costs during retirement, according to a study by Fidelity.
And that number does not include the cost of nursing home or home health care.
At least 70% of people over age 65 will require long-term care services, and more than 40% will need nursing home care, according to the U.S. Department of Health and Human Services.
If you or your spouse require a stay in a nursing home, you would need over $250,000 to cover the typical average stay. And Medicare does not cover these expenses.
What Steps Should You Take if You’ve Underestimated Your Costs in Retirement?
There are several steps you can take to make up a retirement savings shortfall…
- Increase the amount you save each year by at least 1-2% – you won’t feel the pinch, but you’ll be surprised by how much your savings will grow
- Save more where your money is guaranteed to grow every single year, even when the market is crashing – the Bank On Yourself safe wealth-building method has never had a losing year in more than 160 years
- If you’re age 60 or older, consider the benefits of a “Bank On Yourself for Seniors Plan” – a little-known plan that comes with a long-term care benefit included at no additional cost, in most states. It even covers home health care, which many seniors prefer, for up to 3 years
Is There a Way to Have True Lifetime Financial Security?
There is when you Bank On Yourself.
With the Bank On Yourself safe wealth-building strategy, you’ll know the guaranteed minimum value of your plan on the day you need to tap into it… and at every point along the way.
You’ll enjoy liquidity, control, numerous tax advantages, and a competitive return without the risk or volatility of stocks and other investments.
And you’ll receive some built-in protection against inflation because a Bank On Yourself policy grows by a guaranteed and annually increasing amount.
To find out what your bottom-line numbers and results could be if you added Bank On Yourself to your financial plan, request your free Analysis here.
You’ll get a referral to one of only 200 financial representatives in the U.S. and Canada who have met the rigorous training and requirements to be a Bank On Yourself Professional and who can answer your questions and design a plan custom tailored to your unique situation, goals and dreams.