7 dangerous assumptions about retirement that can quickly destroy your savings

There are countless variables involved in any retirement projection, making it an inexact science at best. This is why it’s always worth allowing some “wiggle room” when it comes to predicting 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 quickly destroy your savings, along with suggestions to avoid falling into that trap.

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You will have 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 on the assumption that you will have an “average” lifespan, you may end up running 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, you should always consider the possibility that you will live much longer.

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You stay 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 health care in 2022, the most recent year for which data is available.

If you have serious health care issues, this number can increase significantly, to the point that it could derail your retirement plans. Factoring in a larger-than-average health care budget can help you keep your retirement budget on track.

Your expenses will decrease

In many cases, expenses for seniors decrease after they retire. However, that is not an assumption on which you can base your entire pension.

If you live in a high-cost area or plan to “live it out” in retirement, eating out often and traveling the world, it’s entirely possible that your expenses will actually increase. Plan your intended lifestyle well before you retire so you can build the right expenses into your budget.

The markets will remain consistent

Together with expected life expectancy, market returns are the most critical part of a longer-term retirement projection. If you invest your account in a balanced portfolio and assume you generate a consistent 7% annual return, you could be in trouble if the markets hit a rough patch.

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While market averages may seem fairly even in the long run, they can be anything but in the short run. From early 2000 to late 2009, the S&P 500 index, which has a long-term average annual return of about 10%, posted negative returns, with an average loss of -0.97% per year over that period. lost decade.”

Inflation will remain low

Over the past fifty years, the US has had relatively low inflation, averaging around 3.2%. In fact, the annual change in the inflation rate between 2012 and 2020 has never exceeded 2.4%.

However, over the past four years, the CPI has posted annual gains of 4.7%, 8.0%, 4.1% and 3.2% respectively. While the Fed appears to have inflation under control as we approach the end of 2024, plan for rising costs in your retirement projections to ensure inflation doesn’t eat up all your savings.

You will be able to work

Many retirees plan to continue working after they formally retire, hoping to both increase their income and keep their minds occupied. But it’s entirely possible that physical limitations will force you to retire, perhaps even sooner than you expect.

Your pension then depends entirely on your savings, supplemented with Social Security or any pension income you have. Because working in retirement may not be possible for every senior, think of it as a potential way to generate extra disposable income, rather than as the solution that will finance your entire retirement.

You receive an inheritance

Some workers assume they will receive an inheritance that will help them meet their retirement needs, but that’s a dangerous game. If you fall out of favor with your expected benefactor – or if they end up spending more of their money than they expected – you could be left with a deficit that will be impossible to make up.

Always set up a retirement plan assuming you don’t receive any outside gifts so you’re prepared for the worst-case scenario. If you do become an heir to an inheritance, you can use that money to live a better life, relieve the stress of outliving your money, or perhaps even donate it to charity.

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This article originally appeared on GOBankingRates.com: 7 Dangerous Retirement Assumptions That Can Quickly Destroy Your Savings