6 Warning Signs Your Retirement Budget Won’t Last 25 Years
Written by
Jordan Rosenfeld
Edited by
Angela Corry
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Retirement planning begins with the question: will your money last? But the answer isn’t always obvious, especially in the early years when spending feels manageable and markets may be cooperative.
Find Out: 10 Clever Ways Retirees Are Earning Up To $1K per Month From Home
The real warning signs tend to show up long before a crisis hits. Retirement experts point out which ones foretell the biggest problems.
1. You’re Consistently Withdrawing Too Much Too Early
Just a little bit of extra spending in your early days of retirement can come back to bite you later. Linda R. Jensen, financial and wealth advisor and certified exit planning advisor with Heart Financial Group, said a major red flag is spending that exceeds income on an ongoing basis so that your withdrawals go above 5% to 6%.
“If this is the case, you need to take look at what is going on and don’t hide your head in the sand,” she said.
This is especially problematic if you’re retiring into a down market, according to Steve Sexton, retirement planning expert and CEO of Sexton Advisory Group.
“[Y]ou’re accelerating the depletion in a way that’s very hard to recover from. The math is unforgiving.”
2. Your Budget Only Works Under ‘Perfect’ Conditions
A retirement plan that works only under “perfect market conditions” and minimal surprises, such as inflation and taxes, is inherently fragile, Jensen said.
If your plan falls apart under any of those scenarios, Sexton stressed, “you don’t have a plan; you have an assumption.”
3. You Don’t Truly Know What You’re Spending
A lack of clear spending data is another common red flag in retirement. Scott Schuebel, financial advisor, CEO and managing partner at Statera Advisors, said, “Most people tend to underestimate their real spending. Being just a little off can result in a big difference over thirty years when factoring in inflation.”
Sexton said it’s a problem of not tracking spending in retirement the same way retirees tracked their income when they were working.
“When you start retirement drawing $500 more per month than you planned, that’s $6,000 a year. Over 25 years … you could be looking at $300,000 to $400,000 in shortfall,” Sexton said.
4. You Haven’t Planned for Healthcare and Long-Term Care
Healthcare is “the single biggest wildcard in retirement planning” Sexton said, and one of the most underestimated.
“It’s out-of-pocket costs, dental, vision, hearing and long-term care expenses that Medicare doesn’t fully cover … I’ve seen that one factor alone blow up what otherwise looked like a solid plan.”
5. You’re Ignoring Hidden Expenses
Some of the most damaging expenses aren’t part of a monthly budget–they show up sporadically or get overlooked entirely.
Schuebel called these “the one-offs,” such as needing a new roof or having a car emergency.
Then there are the costs of supporting adult children financially, Sexton said, which are “almost never factored into the original retirement budget.”
Lastly, Jensen said she sees retirees consistently underestimate just how much of their retirement income is taxable, “which reduces net income more than expected.”
6. You’re Not Stress-Testing or Revisiting Your Plan Regularly
A retirement plan needs ongoing review and adjustment to stay viable over decades.
Jensen said, “One good idea is to run scenarios for inflation, market downturns, longer life expectancy, care needs and unexpected healthcare surprises.”
This type of review should be done every year, Schuebel said, to “make sure this spending is sustainable and the plan can support it.”
The earlier you spot these warning signs, the more options you have to course-correct before they turn into something harder to fix.
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