How to Know if Your Money Will Last in Retirement

It may seem hopeless to try to predict how much money you’ll need in retirement when nobody can forecast the future and you don’t know how long you’re going to live. However, if you break things down and look at the particulars of your life, you can make an educated guess about your future financial stability. Here are five questions to ask while deciding when you can afford to retire and how much you can spend after you retire.

How long are you and your spouse going to live? This may be the most crucial question and the hardest to answer. But clearly, the earlier you retire, the more years of retirement you need to pay for. So if you leave work at age 62 — the earliest you qualify for Social Security — and live until your mid-80s, you’re looking at financing 20 or more years of retirement. The cost is even higher if you live into your 90s.

But you might as well be realistic. Some people don’t make it to their 60s, while others will live past age 100. Take into account your current health and family history, and remember to plan for the longevity of both spouses.

For example, consider a man with heart disease in his family who suffered his first heart attack in his 40s. He knew if he was going to retire at all, he had to retire early, so he left his job at age 60. He died last year at age 67, and was able to enjoy at least a few years of leisure and comfort. But his wife is a different story. She’s from a long-lived family, and her mother died at age 102. So his wife is planning to be around for another 30 years and still enjoys working part time.

[Read: How Much You Will Get From Social Security.]

Do you think the economy will continue to expand and grow? Social Security provides a guaranteed income for life. However, Social Security by itself finances a very modest lifestyle. It’s better to have extra income from a pension, retirement account or maybe even a rental property. How much income you will receive from your investments depends in part on how the U.S. economy fares over the next decade or two. Your confidence in the economy and the stock market might play a role in how much you feel comfortable withdrawing from your retirement savings each year. Some people spend down their retirement savings at a rate of 4 percent of assets each year. If you’re worried about the future, then be more prudent and withdraw at a 2 or 3 percent rate.

Do you expect lots of medical bills? Most people rely on Medicare and a supplemental insurance plan to pay medical bills in retirement. But even with Medicare, you will be expected to pay premiums, deductibles and coinsurance for your medical care. And insurance does not cover everything. Many plans do not cover glasses, hearing aids and dental problems, and prescription medicine coverage varies by plan. So now is the time to review your supplemental insurance and make sure it covers your particular situation. You should also take a realistic assessment of your health. The person who exercises and eats right is probably going to spend less on health care than an overweight person with diabetes. And remember, the best investment you can make in your health may not be a bigger health savings plan, but membership in a fitness club.

[Read: Medicare Out-of-Pocket Costs You Should Expect to Pay.]

Will you ever live in a senior living facility? More than half of those age 65 and older will need long-term care at some point in the future, according to the U.S. Department of Health and Human Services. The cost of senior living can vary enormously, depending on what part of the country you live in and the services you need. An independent living facility that provides few services may not cost much more than living anywhere else. But if you need more services, such as meals, physical therapy, personal care and nursing services, long-term care is much more expensive. Even if you never need to move to an assisted living facility, unless you have a loved one who will take care of you, there will likely come a time when you need in-home care. You may want to consider long-term care insurance to help pay for future care, either in a facility or at home.

[Read: Don’t Run Out of Money in Retirement.]

What does your retirement lifestyle look like? Retirement can be a time to live out your dream, whether that means spending time on a golf course in the sunbelt or taking care of your grandchildren. While it’s hard to predict the economy or your health, it’s easy to figure out your desired lifestyle. You need a big nest egg if you plan to travel or live in an upscale community. You don’t need as much money if you’re planning to live with your children and help them take care of the kids. Do some research about your retirement costs for housing, food, clothing and entertainment. For some people, it might be worth it to work an extra couple of years in order to finance an expensive dream. Other retirees are perfectly happy living a more modest lifestyle that still allows them the freedom to enjoy life on their own terms.

Tom Sightings is the author of “You Only Retire Once” and blogs at Sightings at 60.

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