eggygju/Getty Images/iStockphoto
Commitment to our readers
The GOBankingRates editorial team is committed to providing you with unbiased reviews and information. We use data-driven methods to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our review methodology for products and services.
20 years
help you get rich
trusted by
millions of readers
Retirement planning starts with this question: Will your money last? But the answer is not always clear, especially in the early years when expenses seem manageable and markets may be supportive.
FIND OUT: 10 Clever Ways Retirees Are Making Up to $1K Per Month From Home
The real warning signs appear long before a crisis occurs. Retirement experts explain which of these predict the biggest problems.
1. You are constantly withdrawing too much money too quickly
A little extra spending early in retirement can hurt you later. Linda R. Jensen, Financial and Wealth Advisor and Certified Exit Planning Advisor Hart Financial GroupThat said, a major red flag is expenses that exceed income on a consistent basis so that your withdrawals are above 5% to 6%.
“If that’s the case, you have to pay attention to what’s happening and not bury your head in the sand,” he said.
According to retirement planning expert and CEO Steve Sexton, this is especially problematic if you’re retiring in a down market. Sexton Advisory Group.
“[Y]ou are accelerating the decline in a way that is very difficult to recover from. The mathematics is inexcusable.”
2. Your budget only works under ‘perfect’ circumstances
A retirement plan that only works under “ideal market conditions” and minimal surprises like inflation and taxes is inherently fragile, Jensen said.
If your plan fails in any of these scenarios, Sexton emphasizes, “You don’t have a plan; you have an assumption.”
3. You don’t really know what you’re spending
Lack of clear expense data is another common red flag in retirement. Scott Schubel, Financial Advisor, CEO and Managing Partner Statera Advisorsaid, “Most people underestimate their real spending. Just a small reduction when accounting for inflation can make a big difference over thirty years.”
Sexton said this is a problem of not tracking spending in retirement the way retirees track their income while working.
“When you start getting $500 a month more than you planned in retirement, that’s $6,000 a year. Over 25 years … you could be looking at a $300,000 to $400,000 shortfall,” Sexton said.
4. You haven’t planned for health care and long-term care
Healthcare is “the biggest wildcard in retirement planning” and the most underestimated, Sexton said.
“These are out-of-pocket costs, dental, vision, hearing and long-term care expenses that Medicare does not fully cover… I have seen one factor alone destroy what otherwise seemed like a solid plan.”
5. You’re ignoring hidden expenses
Some of the most damaging expenses aren’t part of the monthly budget—they appear sporadically or are ignored altogether.
Schuebel called these “one-offs,” like needing a new roof or a car emergency.
Then there are the costs of financially supporting adult children, which “almost never are included in the basic retirement budget,” Sexton said.
Finally, Jensen said she sees that retirees consistently underestimate how much of their retirement income is taxable, “causing net income to be lower than expected.”
6. You’re not regularly stress-testing or rethinking your plan
A retirement plan requires constant review and adjustment to remain viable over the decades.
“A good idea is to run scenarios for inflation, market declines, longer life expectancies, caregiving needs and unexpected health care surprises,” Jensen said.
This type of review should be done every year, Schubel said, “to ensure that this spending is sustainable and that the plan can support it.”
The sooner you recognize these warning signs, the more options you’ll have before they become too difficult to fix.
