By Harlan Storey​

Once upon a time, $1 million was the goal to aim for, the number that would solve all your financial problems. But while that amount of money is nothing to scoff at, it’s not going to get you as far you think these days, thanks to the impact of rising living expenses, healthcare costs, and unexpected circumstances. So how can you make sure what you have saved will last you through your golden years?

The Inflation Factor

First, it’s important to understand how inflation affects your retirement. Put simply, inflation erodes your money’s value. Inflation has often been nicknamed the silent retirement killer because so many people forget to account for it in their income planning. Unfortunately, inflation is one of the few certainties in life. Over the last 50 years, the cost of goods and services has increased an average of 3.7% per year. (1) Let’s say inflation continues to average 3% a year. In 40 years, $1 million will be worth $306,000 in today’s dollars, and that’s definitely not enough to buy you a comfortable 30-year retirement.

To put these numbers in perspective, let’s look at history. If you wanted to have the same purchasing power as a millionaire from 1914, you would have needed $3 million in 1980. But here’s the shocking number: in 2019, you would need $25 million to match the $1 million of 1914. (2)

Rising inflation tends to happen so gradually that it’s hard to see the effects of it on your wallet year to year. When saving for retirement, you need to calculate that effect forward anywhere from 10-50 years in the future. So if a new car costs around $5,000 in 1980 and $34,000 in 2019, you could find yourself spending over $65,000 to upgrade your vehicle in 2041. (3)

How To Make Your Money Last In Retirement

We can’t predict the future, but we can prepare well based on historical data. Since you need your retirement savings to last as long as you do, implement these potential solutions in your financial plan.

Conservative Withdrawal Rates

Since you know that stocks have historically earned an average of 7-8% a year, you might assume that you can afford to withdraw 7-8% of the initial portfolio value (plus a little more for inflation each year). (4) But in reality, to protect against the uncertainty of the market, you may need to limit your withdrawals to less than 4%. (5) Because there is no simple, one-size-fits-all plan, you need to figure out what will work for you and your unique situation, taking various factors into account, such as time horizon, risk tolerance, asset allocation, and taxes.

Set Up Contingencies

There is sophisticated software available to factor in inflation and calculate how long your money will last based on where you live, which withdrawal rate you choose, and what the markets will do. But there are some things a computer just can’t predict, such as your health.

According to the Employee Benefits Research Institute, the average couple at age 65 will require anywhere from $151,000 to $255,000 just to cover their healthcare costs in retirement. (6) Build contingency funds over and above your regular retirement account to give yourself a bit of a savings buffer. There will always be unexpected expenses in life, whether it’s needing a new car, home repairs, or unexpected long-term care expenses. Planning ahead will give you peace of mind.

Save More And Spend Less

The longer your planning horizon, the more resources you will need for retirement. The most obvious way to lower the risk of outliving your money is by saving more before you retire and underspending when you reach retirement. If you have any debt, focus on reducing it as much as possible so your resources can be devoted to saving.

Adjust Expectations

Retirement often means major lifestyle changes. As a result, your expectations may need to change as well. If you want a comfortable retirement, you may have to rethink how much you will be able to give your children as a down payment on a house or an inheritance.

You may even need to downsize your home or relocate to a more affordable area. Cost of living varies drastically across the U.S. When you are determining how much money you need for retirement, location can make all the difference. For example, if you live in California, $1 million (in today’s dollars) will only last about 15 years and 6 months, mostly due to housing and utility costs. But if you live in Ohio, it’s estimated that $1 million will last almost 23 and a half years because of affordable living expenses that fall below the national average cost. (7)

Stay flexible and be willing to make adjustments in order to secure your financial future and stretch your wealth as far as possible.

The Bottom Line

It can be disheartening to look at the numbers and realize that what you were aiming for is not enough. But by making small changes now and planning ahead, you can set yourself up to experience the retirement you dream of. Use these pivotal years to implement strategies to protect, grow, and transfer your wealth. If you want a customized financial plan to get you from point A to point B, Storey & Associates is here to help. Get in touch with us today by calling 330-526-8944 or shoot us an email at info@storeyassociates.com. Or, if you prefer, you can quickly and easily click here to schedule your free initial consultation online.

About Harlan

Harlan Storey is president and founder of Storey & Associates with more than 30 years of experience providing financial counsel to individuals, families, and small businesses. With a background as an estate planning attorney also providing tax services, Harlan now advises a clientele consisting of corporate executives, medical professionals, small business owners, and retirees. He specializes in income tax planning, business exit strategies, estate and insurance planning, asset allocation, and career transitions. In addition to his role as a financial advisor, Harlan is a member of the firm’s investment committee and manages the operations of the business. Harlan is a CERTIFIED FINANCIAL PLANNER (CFP®), member of the Financial Planning Association (FPA), and graduated from the University of Akron with degrees in accounting and law. Harlan was one of the earliest members of the National Association of Personal Financial Advisors (NAPFA), showing his commitment to fee-only financial planning. Harlan and his wife reside in North Canton, Ohio, and are the parents of two adult children. He enjoys spending time outdoors, running, kayaking, and tending to their two horses. Learn more about Harlan by connecting with him on LinkedIn.

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(1) https://www.usinflationcalculator.com/inflation/historical-inflation-rates/

(2) https://www.dollartimes.com/inflation/inflation.php?amount=1000000&year=1970

(3) Estimating 3% inflation rate. https://www.financialsamurai.com/are-you-a-real-millionaire-3-million-new-1-million/

(4) http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

(5) https://www.nytimes.com/2015/05/09/your-money/some-new-math-for-the-4-percent-retirement-rule.html?_r=0

(6) https://www.ebri.org/pdf/notespdf/ebri.notes.oct13.retsvgs1.pdf

(7) https://www.gobankingrates.com/investing/how-long-million-last-retirement-state/2/