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Retirement News3 Ways You’re Underestimating Your Retirement Costs | Business | #retirement | #elderly | #seniors

3 Ways You’re Underestimating Your Retirement Costs | Business | #retirement | #elderly | #seniors


3 Ways You're Underestimating Your Retirement Costs

When it comes to estimating retirement costs, a lot of people’s guesses are way off, sometimes by hundreds of thousands of dollars. That kind of math error is enough to turn retirement from a time of freedom to one of worry and restriction. But that doesn’t have to happen to you.

Below are some of the most common issues that cause people to underestimate their retirement expenses. If any apply to you, follow the tips to fix them now before they come back to bite you in retirement.

Image source: Getty Images.

1. You forgot about inflation

Costs rise over time due to inflation, forcing you to spend more to maintain the same lifestyle you’re used to. Inflation rates vary. Since 1980, the annual inflation rate has ranged from 0.1% to 12.5%, but the average annual inflation rate over that time has been about 3%. So that’s a good baseline to use when estimating how inflation will affect your costs in retirement.

Start by figuring out how much an average year of retirement would cost based on today’s prices. Then, add 3% per year for every subsequent year to get an approximation of how much you’d need to cover your expenses as costs rise.

For example, if you think you’d need $40,000 to cover your retirement expenses this year, you should save 3% more, or $41,200, to cover the same amount for the next year. For the year after, you’d save 3% more than the $41,200, or $42,436, and so on. If the inflation rate is low one year, you might not spend all that you’d budgeted for. But things should even out if the inflation rate is higher than average in another year.


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