Retirement and Unexpected Expenses

Nov 2006 //
Retirement

Although longevity is an important consideration, you’d be surprised how many people seem convinced that a nest egg that’s five or ten times their estimated annual retirement spending will be sufficient.  In reality, over 25 years of retirement (or more), it probably won’t be.  Further, experience suggests that at least 90% of us underes­timate our actual spending. ...  While the exact nature of unexpected expenses can’t be anticipated, most people fail to budget for unexpected expenses at all—and that can be a big mistake.  Put differently, it’s important to generally expect the specifically unexpected.  Further, logic dictates that the longer you plan to use your retirement nest egg, the larger it should be.  (I suggest about 20 times annual expenses.) ... the longer your retirement funds need to support you, the more appro­priate it is to choose a conservative rate of withdrawal.