2 Retirement Risks Affluent Americans Often Overlook
Written by
Gabrielle Olya
Edited by
Molly Sullivan
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Many wealthy Americans feel confident about retirement — but confidence can be costly. A recent Prudential survey found that while 89% of mass affluent Americans believe they’ll be able to cover essential expenses in retirement, most overlook two major risks that could derail their plans: inflation and healthcare costs.
Here’s why even affluent Americans can’t ignore these risks when retirement planning.
How Inflation Impacts Retirement Savings
The survey found that many mass affluent couples aren’t factoring inflation into their retirement strategies:
- Only 53% of those who discussed retirement with a partner considered inflation.
- Among those who haven’t had the conversation, that number drops to 45%.
“It’s a good practice for everyone to factor inflation into their holistic financial planning, including for retirement,” said Chris Leckenby, a financial planner at Prudential. “If we look back only five years, $100,000 in annual expenses in 2020 would equate to almost $125,000 in expenses in 2025.”
Failing to account for inflation can deplete assets much faster than expected. Leckenby recommended running multiple scenarios with a financial planner to stress-test your plan.
“With 20-year average inflation at 2.2% and five-year at 2.7%, we can easily view with clients how different rates impact overall assets long term,” he said. “If we have high inflation for a year or two outside of the normal average, combined with down market years while you are taking distributions from retirement accounts, this will impact financial plans much quicker than a typical straight-line cash flow projection.”
It’s important to look at the various situations and have the correct asset allocation, Leckenby said.
Why Healthcare Costs Threaten Retirement Plans
Healthcare is another major blind spot:
- Only 48% of those who discussed retirement with a partner factored healthcare costs into their plan.
- Among those who haven’t, just 37% considered them.
“With the population living longer, it’s a critical item as healthcare costs accumulate with older age,” Leckenby said.
He recommended factoring in an additional $600 per month to cover healthcare in retirement — but warned that long-term care can be far more expensive.
“An additional $600 each month is not so bad — it is the $10,000 per month that many retirees do not account for,” Leckenby said. “That’s your very typical cost of a nursing home room if long-term care is needed. If that event happens in retirement, assets get depleted very quickly unless we plan for it through long-term care policies, hybrid life insurance and annuity options, or self-funding.”
Don’t forget potential healthcare costs for aging parents as well, which can impact your own retirement savings.
“Those expenses can creep up on people as a real surprise,” Leckenby said. “I always advise that it’s easier to have an uncomfortable 10-minute conversation than be surprised with bills that will take you off track.”
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