What That Early Retirement Dream Really Costs If You Live to 95
Written by
Chris Adam
Edited by
Zuri Anderson
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If you’re hoping to retire early and live well into your 90s, consider just what that means for your finances.
If you retire at 45 and live to 95, that means you need your money to last 50 years. That may be a problem since most retirement calculators plan for 20 to 25 years.
“That gap is catastrophic,” said Andrew Lokenauth, founder of the blog Fluent in Finance. “During my time at Goldman, I watched clients with $2 million-plus portfolios run into serious trouble in their late 70s because nobody planned for longevity. The math is brutal.”
GOBankingRates dives deep into the long-term costs of living longer after retiring early.
The Inflation Factor
Lokenauth broke down the math even further. At roughly $80,000 per year in today’s dollars, accounting for inflation running at about 3% annually, you’d need somewhere around $3.5 million to $4 million just to cover basic living expenses. And that’s before healthcare costs, which tend to double or triple in the final decade of life.
“Conservatively, we could expect inflation to double the cost of living in 30 years,” said Melanie Musson, a finance expert with Quote.com. “When your retirement lasts longer than 30 years, you need to anticipate the costs at the end of your life being twice as much as they are when you first retire.”
The Simple Framework
“I personally think the early retirement movement is sold on a fantasy,” Lokenauth added. “People obsess over the ‘retire early’ part and skip the ‘live to 95’ part entirely. My framework is simple: Add 10 years to whatever age you think you’ll live to, then build your portfolio around that.”
The Categorization Method
Marguerita Cheng, certified financial planner (CFP) and CEO of Blue Ocean Global Wealth, encourages clients preparing for retirement to categorize their expenses as either core and essential ones or lifestyle ones. She then tries to help them identify sources of sustainable predictable income to cover the core and essential expenses.
“There is nothing wrong with wanting to retire early, you just need to plan for it and create a sustainable tax-efficient retirement income plan,” Cheng said. “For individuals who want to retire early, it is important to think about sequence of return risk, market risk, inflation risk and frailty risk.”
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