Retirement: Factoring In the Unknown

by: Roger Nusbaum

roger nusbaumRoger Nusbaum submits: Whew, what a relief, my wife and I don't need to save anymore. How do I know this? Well I plugged our numbers into a retirement calculator on Yahoo Finance and according to the calculator if we wait until I am 70 to draw social security we will take in $97, 197 and our income need will only be $79, 181 (we live quite a ways below our means). This really is a load off my mind because we "spend" a lot of money funding our various retirement accounts, and now with this news we can just spend the money on fun stuff. For that matter we can spend what we have already saved because our social security will always be more than our income need.

What could go wrong?

It seems like anytime I look at one of these calculators it tells me we will have a gajillion dollars leftover if I die at 110. I'm not one for relying on this sort of thing. I have written before about whether brokerage firms tell people to save too much, not that I have an answer to that, but the idea of saving too much seems silly --the sellside's motivation notwithstanding.

Barry Ritholtz had a link to a post on a blog called The Float that warned about inflation, more specifically purchasing power risk, being the biggest risk to a successful retirement. Within that post was a link to a WSJ article on the subject that included a profile on what seemed like a financially normal retired couple that spend $11,640 per year on various medical coverages including long-term care insurance. They also set aside another $3000 for "uncovered costs."

My wife and I spend about $2400 on insurance and maybe another few hundred on checkups (high deductible HSA), so $11,000 seems high to me, but obviously I don't have the right perspective. The point is that medical expenses are high now for retired people and should be expected to take up more of people's budgets in the future. As a 41 year-old trying to save, I have no clue what my medical expenses will be in 30 or 40 years. What is your time horizon for retiring? Do you have a clue as to what your medical expenses will be?

Given the variable nature of this, the need to save as much as possible seems fairly obvious. There are, reasonably speaking, several big unknowns but you still need to map something out if you have not already done so.

What do your numbers look like with social security? How about without? Are you counting on an inheritance? What if it somehow falls through? Are you planning to work forever? What if you can't?

These are questions we all have to factor in and ask again every so often.