Retirement Expenses Are Too Hard to Predict

All this uncertainty makes planning for retirement harder. Consider: Someone making average earnings, about $70,000 per year, at 65, needs $750,000 to supplement Social Security to maintain living standards for 25 years. Assuming a life expectancy of 85, not 90, reduces the number to $650,000. That’s a big difference!

You can plan perfectly and still be surprised. I knew one couple, married for 40 years, who worked good professional jobs longer than they had to so they’d be sure they’d have enough.

Two months after they left their cold Northern city to spend their golden years in the sunny Southwest, the wife was diagnosed with terminal cancer. Before her diagnosis, longevity tables predicted she would live another 20 years. Instead, she died three years later. They’d followed expert advice to a T. An early death was possible, just not probable or predictable.

Nursing Care

What about saving for a nursing home? This is an area where most of us worry more than we should.

Only about one-third of Americans currently between the ages of 57 and 61 will spend any money on nursing home care at any point in their lives — and for 43% of people, private or public insurance will pay everything. Only 5% of us will fund long nursing home stays, costing $47,000 or more. (Commercial long-term care insurance is a bad bet for most people.)

Many people are able to save for life’s unpleasant surprises because they’re predictable. With retirement planning, the only thing that’s predictable is that it will be expensive. For decades, personal finance experts have nagged and shamed Americans to save more, but the average retirement account balance of 65-year-olds is just $225,000.

About half of people have saved nothing at all. The vast majority of retirees do not have enough, no matter how long they live. We need universal retirement savings accounts, low-cost and inflation-indexed annuities, a strong Social Security system, and Medicare that pays for long-term care.

Because of the do-it-yourself nature of retirement saving, too many people outlive their savings or hoard money they should be spending — and everyone has too much anxiety. To plan correctly in this system, you need to know unknowable things. The U.S. needs better systems to help people cope.

Teresa Ghilarducci is the Schwartz Professor of Economics at the New School for Social Research. She’s the co-author of “Rescuing Retirement” and a member of the board of directors of the Economic Policy Institute.

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