6 Reasons Your Retirement Savings Isn’t Enough — Even When You Think It Is

No one wants to end up broke in retirement. Yet a third (32%) of retirees say they don’t have enough money to last through retirement, according to a 2024 survey by Schroders.

Indeed, the Federal Reserve’s most recent Survey of Consumer Finances found that roughly half of Americans have nothing saved for retirement at all. 

Even those who think they have enough may be in for a rude awakening. Consider the following reasons your nest egg may need more padding before you call the job quits.

The Congressional Budget Office projects a federal budget deficit of $1.6 trillion in 2024, and the federal debt rising from 99% of GDP in 2024 to 116% by 2034. 

Politicians love to spend today and let someone else worry about the bill tomorrow. Unfortunately, that “someone else” isn’t just their successor in office — you and I will pay the bill sooner or later, in the form of higher taxes. 

That could mean higher rates on existing types of taxes, such as income taxes. Or it could mean the government creating new types of taxes to add to our existing tax burden. 

“Uncertainty around future income tax rates and proper tax planning is a major consideration for retirement savings,” explains Thomas Schulte, a Certified Financial Planner and partner at Napier Financial. “While large pre-tax retirement accounts certainly help, they come with large income tax bills upon distribution.

“Retirees and soon-to-be retirees should always be asking: What can I do now to be as efficient as possible from a tax perspective?” Consider contributing to Roth accounts instead of traditional retirement accounts, and doing Roth conversions to move your existing funds from a traditional to a Roth account.

When governments get into trouble paying their debts, most don’t default. They simply let inflation run rampant and reduce the value of their debts. 

“Rising inflation can quickly erode the purchasing power of your savings,” notes Erika Kullberg, personal finance expert and founder of Erika.com. “As we’ve seen especially in recent years, inflation can make everyday purchases far more expensive over time.”

Even a “healthy” inflation rate saps your savings when you plan in decades. Tom Buckingham, an actuary and chief growth officer for Nassau Financial Group, notes, “It doesn’t take much more than 2% annual inflation for the cost of goods to double over 30 years.”

Tomorrow’s dollar won’t stretch as far as you think, so invest more than you think you need.

We all assume we’ll live a roughly average lifespan. But life expectancies form a bell curve — and plenty of people fall on the right-hand side of it.

“Many people underestimate how long they might live,” observes Buckingham. “And that risk is even higher for a married couple. At least one of two 65-year-old spouses has almost a 50% chance of living to at least age 90, and a 20% chance of living to at least age 95.

“That’s 25-30 years, or more, in retirement! And, over that time, inflation is likely to have a significant impact on living expenses, not to mention healthcare costs.”

A study by Fidelity found that the average 65-year-old married couple can expect to spend $315,000 on medical expenses over the course of their retirement. 

“Unexpected healthcare and long-term care costs can and often do crop up,” add Kullberg. “And when they do, they have a significant impact on retirement savings.”

You’ve read it a hundred times: past performance does not guarantee future results. 

The 4% Rule for safe withdrawal rates is based on past stock and bond markets’ performance. But who’s to say that the stock market will keep generating similar returns in future decades? 

Low birth rates and slowing population growth may rob financial markets of momentum. “Financial planners put a lot of work into projecting the success of investments for retirement, but those forecasts are fallible,” explains Kullberg. 

“If your investments underperform, especially with a budget that’s already tight, you may have the savings you need to sustain your lifestyle in retirement.”

Frighteningly, your long-term average returns could match projections and you could still run out of money. 

Known as a sequence of returns risk, Buckingham explains that a stock market crash early in your retirement wreaks far more havoc on your portfolio than the same crash later on. “If a retiree’s assets decline early in their retirement years, it forces them to withdraw a higher percentage of their assets than planned.”

Withdraw too much early on, and your portfolio shrinks too small to recover — even when the market bounces back. 

Save more than you think you’ll need for retirement. You can always pass assets on to your children or charities, but it’s a lot harder to add income and replenish a failing nest egg in retirement.