Pay Dirt is Slate’s money advice column. Have a question? Send it to Kristin and Ilyce here. (It’s anonymous!)
Dear Pay Dirt,
Being prepared is important to me, and I’ve tried to save at the rates that financial experts suggest. But there’s something that is really bothering me.
I know a lot of the big investment firms suggest having various multipliers of your income invested at various ages. And the FIRE people are all about the safe withdrawal rate. I’m at or ahead of those benchmarks. Those estimations seem to assume your budget’s going to be roughly constant once you adjust for inflation. Sometimes they say your budget will maybe drop a little in retirement, since you won’t need work clothes, a parking permit, etc.
But while I know what my budget is now, I’m pretty sure that health care costs are going to go up faster than inflation. I don’t see how I’m supposed to be able to accurately predict what that’s going to be in decades, and I’m only 43. How are we supposed to know what retirement will cost decades from now?
—Lacking a Crystal Ball
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You’re right—t’s impossible to precisely predict what retirement will cost decades from now. In some ways, the whole system of retirement planning is built on educated guesses. For the most part, though, those educated guesses are based on historical data—the best we have—and they’ve played out in a fairly stable way. But you have a point that there are other circumstances to think about, and healthcare is a big one.
Being at or ahead of the existing benchmarks at least puts you in a pretty good financial position, even if the benchmarks themselves are sophisticated guesswork. The fact that you’re thinking about this now and already saving aggressively means you’re building in a buffer for all the unknowns that the standard calculations don’t really account for. The best approach is to keep doing what you’re doing while acknowledging that those “safe” withdrawal rates might turn out to be overly optimistic. Use the saving calculators as a starting point, but plan for the future according to your own concerns—hat you feel comfortable with, not what some FIRE calculator tells you.
The reality is we’re all just making our best guess, hoping for the best, and adjusting as we go. That’s true in money, but it’s also true in life. The fact that you’re aware of the limitations and still planning ahead puts you way ahead of most people.
—Kristin
More Money Advice From Slate
My husband grew up poor in a single-parent household. I grew up better off, with both parents making six figures. My parents were both good at saving, and good at investing money wisely. My husband knows we were better off (multiple trips to Disney World, all the fancy ‘80s toys, a large house with two spare rooms), but I don’t think he realizes just how well off. I’m just wondering if I should prepare him in some way for when my mom passes away, or go the “Surprise! We get a third of a multi-million dollar estate” route. Should I surprise him?
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