Salary Stain is Slate Money Advice Column. Have a question? Send it to Christine and Iris here. (Anonymous!)
Dear dirt,
Preparation is vital for me, and I’ve been trying to save money at the rates that financial experts suggest. But there’s something that really concerns me.
I know that many big investment firms suggest different income multipliers for various ages, and everyone who advocates for early retirement talks about safe withdrawal rates. I feel like I’m doing pretty well, maybe even better than those benchmarks. However, these guidelines seem to assume that spending will stay fairly constant when adjusted for inflation. They say you won’t need work clothes or parking permits anymore, so your budget might drop a bit upon retirement.
But I’m aware of my current budget, and I’m pretty sure healthcare costs will rise faster than inflation. How does anyone accurately predict those expenses decades ahead? I’m only 43. I just can’t wrap my head around how to estimate what retirement will cost me so far down the line.
Dear Crystal Ball,
You’re correct—it’s really challenging to foresee what retirement will look like decades from now. In a way, the entire retirement planning framework is built on educated guesses. But usually, these guesses are informed by historical data and tend to unfold in a relatively stable manner. However, healthcare is a significant factor to consider.
Even if these benchmarks are essentially sophisticated estimates, if you’re at or even ahead of most, you’re likely in a pretty good financial position. It’s great that you’re thinking about all this now and saving actively; it means you’re building a cushion against the uncertainties that standard calculations often overlook. Keep doing what you’re doing, but recognize that those “safe” withdrawal rates might be a bit too optimistic. Use savings calculators as a starting point, but tailor your plans according to your own concerns. It’s important that you feel secure.
Ultimately, we all want the best outcomes and hope things will align with our needs. This applies to finances as well as life in general. The fact that you understand your limits and still think ahead puts you way ahead of most people.
– Christine
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