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2026
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The Retirement Math Most Americans Get Wrong
Retirement planning. We all should be doing it, and hopefully you’ve already taken steps to both plan for retirement and to implement that retirement plan. As you go through life, though, it’s a good idea to periodically (read: yearly) review your retirement plan to make sure that it will still get you where you want to go and that you are on track to get there. Over the years, I’ve watched countless retirement plans fail not because people didn’t save enough – but because the assumptions behind those plans simply broke down. It’s tough to face the fact that your plan, the one you’ve been following for decades to fund a secure, comfortable retirement, has become obsolete. Believe me, though – the longer you wait to come to terms with this reality, the harder it is to get back on track. Today we’ll discuss those assumptions, how they can let you down and strategies for making your retirement plan more resilient. The big challenge of retirement planningLet me be clear: I’m not against retirement planning. It’s important to make those plans and to know what you’re working toward. But don’t take my word for it. During the extensive planning that became Operation Overlord in 1944, General Dwight D. Eisenhower famously told his senior Army leadership:
The big problem with all plans, military and civilian, is that plans are based on assumptions. Those assumptions aren’t certainties or absolutes. They’re subject to change. For example: Families have believed that saving one million dollars is a solid retirement goal for decades now. Enough to live on with no worries – the “magic number” for a comfortable retirement. (And it’s a nice round number, easy to remember and easy to measure.) Today, though? According to Merrill Lynch, one million dollars today provides an annual income of $41,000 during your retirement years. One and a half million today is worth about $61,000 per year. Where in the U.S. can you live comfortably on that amount? Comfortably, not lavishly. For example, Kiplinger reported a survey estimating the cost of living in all 50 United States. Even counting Social Security income, it might not surprise you to discover that $61,000 isn’t enough for most places. (West Virginia, Kansas, Mississippi and Oklahoma were the least expensive states, by the way.) The most expensive states (Hawaii, Massachusetts and California) require at least twice as much as the least expensive. Assuming you can move (which isn’t always the case, considering the housing market), you may have the option of relocating to Topeka or Tulsa to lower your cost of living. The primary lesson here is, like real estate, location is an important factor in your retirement plans. Even so, the numbers we’re discussing have a fundamental flaw. The unspoken assumptions that almost no one talks aboutLocation is one variable that you have some control over. Prices, though? There’s not too much you can do about that. John Rampton tells us that “your ‘enough’ will greatly vary based on where you live, your lifestyle expectations, your health, and how inflation affects your spending.” We already discussed location. Then there are your “lifestyle expectations.” You’ll likely want to live in at least a comfortable home (or apartment or condominium). And who can predict what housing will cost once you reach retirement age? Historically, home prices rise 3-5% annually. In the last 10 years, they’ve risen 6-8% per year. But there’s a lot of volatility in that number – home prices rose as much as 18% in one year during the pandemic. Then there are other lifestyle choices. Do you plan to travel the world? Or even just see the sights across the U.S.? International travel is expensive. Even touring the U.S. isn’t cheap. Plan to eat out regularly? How about hobbies like golf or tennis? Tickets for big games, concerts or plays? How much will those cost? And that’s overlooking the single biggest expense we’re virtually certain to face in retirement: Healthcare. Ideally, you’ll be in good shape physically and will have low medical expenses during your retirement years. (Hit the gym now!) On average, today, a couple can expect to spend nearly $13,000 on healthcare in the first year of retirement alone! Healthcare costs have been rising faster than other prices – about 5.5% per year over the last decade (9.4% in 2023 alone!). Fidelity offers this intriguing healthcare costs calculator that’s worth a look. (It told me I should plan on $256,000 in healthcare expenses during my retirement – just for me! Not counting Mrs. Reagan!) Healthcare costs aren’t something that you can plan for effectively. If you’re generally healthy (congratulations!), most healthcare costs will come as an unwelcome surprise. You can estimate typical annual costs, using something like the Fidelity tool – but there’s a lot of uncertainty around those numbers. It’s tempting to simply ignore factors like this, isn’t it? Since we can’t really plan for them, it’s easy to decide to cross your fingers and just hope it all works out… I don’t recommend that. Like Eisenhower said, your plan may not be helpful. Planning itself, on the other hand, is invaluable. Don’t ignore these numbers! Even if they’re disheartening, come to terms with them. Take them into account when planning for your retirement. Even if you can’t know for sure, in advance, what they’ll be, at the very least you’ll be aware of that uncertainty. I understand that’s deeply uncomfortable for many people. But pretending those uncertainties don’t exist doesn’t make them go away. The last and most important unknownWe’ve discussed the cost of housing and healthcare. Those are just two factors that make up what we call inflation. By design, the dollar is managed with the goal of losing 2% of purchasing power a year. The Fed overachieves at this goal, though – the last time I checked, the average official rate since 1972 was 4.5%... And, like housing prices, that number varies quite a bit. Now, you’re probably aware that Social Security offers an annual cost of living adjustment (COLA) that matches the headline consumer price index (CPI), the official rate of inflation. There are a couple of problems, though:
Analyst John Williams makes a very convincing case that headline CPI is significantly distorted for political reasons – I’m not going to get into that here. I think it’s sufficient to say that Social Security’s COLAs are not reflective of real-world costs. Effective retirement planning embraces uncertaintiesWe’ve already seen that we can’t ignore these uncertainties. As uncomfortable as it is, we have to accept that. So what can we do?
Personally, I don’t want to start considering a move to Belize, or Albania, or one of those countries that’s inexpensive. That is an option some folks are happy to explore, but it’s not for me. Furthermore, I believe it’s advisable to diversify your savings with inflation-resistant investments. That’s one way to offset cost-of-living increases that, let’s face it, are inevitable in the future. The closer you are to retirement, the more important wealth preservation becomes. The young have decades ahead to ride out economic boom-and-bust cycles, but we don’t. One inflation resistant asset, physical precious metals, is often overlooked. Physical gold and silver aren’t popular with financial advisors. You don’t hear about them on TV news, and nobody talks about them at backyard barbecues. That’s a real shame, because precious metals are historically one of the most resilient, inflation-resistant assets available to us. If you’d like to learn more about the benefits of owning gold and silver, request our free 2026 Precious Metals Information Kit.
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You can do everything right – save diligently, plan ahead, follow the rules – and still come up short in retirement. The problem isn’t effort. It’s assumptions: Inflation, healthcare, and living costs don’t behave the way we expect. So what can we do?