The Risk of Outliving Your Retirement Savings
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
When you imagine retirement, perhaps you see time with family, travel, golf, and more time for your hobbies. What many don’t realize is how two forces—longer lifespans and rising costs—can quietly erode your nest egg while you're still enjoying those moments. Living longer is a blessing, but it means your savings must stretch further. And inflation, especially for healthcare and long-term care, can quietly chip away at your financial comfort over the years. Let’s explore how these factors shape your retirement picture—and what you can do about it.
What you’ll learn in this article:
How life expectancy is evolving, and how it’s increasing the need for more retirement savings
The impact of inflation on a retiree's expenses over the long term
How inflation on specific items like healthcare and long-term care are running at much higher rates than the general rate of inflation
How retirees can test their retirement projections to ensure that they are properly accounting for inflation and life expectancy
How pensions can be both a blessing and a curse
1. Living Longer: A Good But Bad Thing
The Social Security life tables estimate that a 65-year-old male in 2025 is expected to live another 21.6 years (reaching about age 86.6), while a 65-year-old female can expect about 24.1 more years, extending to around 89.1 (ssa.gov).
That has consequences:
If a retiree spends $60,000 per year, a male might need 21.6 × $60,000 = $1,296,000 in total
A female might need 24.1 × $60,000 = $1,446,000
These totals—before considering inflation—highlight how long-term retirement can quickly become a multi-million-dollar endeavor.
2. Inflation: The Silent Retirement Thief
Inflation steadily erodes the real value of money. Over the past 20 years, average annual inflation has held near 3%. Let’s model how inflation reshapes $60,000 in annual after-tax expenses for a 65 year-old retiree over time with a 3% annual increase:
At age 80 (15 years after retirement):
$60,000 × (1.03)^15 ≈ $93,068 per yearAt age 90 (25 years after retirement):
$60,000 × (1.03)^25 ≈ $127,278 per year
In just the first 15 years, this retiree’s annual expenses increased by $33,068 per year, a 55% increase.
3. The Hidden Risk of Relying Too Much on Pensions
One of the most common places retirees feel this pinch is with pensions. Most pensions provide a fixed monthly amount that does not rise meaningfully with inflation. That can create a false sense of security in the early years of retirement.
Example:
A married couple has after-tax expenses of 70,000 per year.
They receive $50,000 from pensions and $30,000 from Social Security.
At retirement, their $80,000 of income in enough to meet their $70,000 in after-tax annual expenses.
Here’s the problem:
The $50,000 pension payment will not increase.
Their expenses, however, will rise with inflation. After 15 years at 3% inflation, those same expenses could total about $109,000 per year.
By then, their combined pension and Social Security will fall well short, forcing them to dip heavily into savings—or cut back their lifestyle.
This illustrates why failing to account for inflation often means retirees “feel fine” at first, only to face an unexpected shortfall 10–15 years later.
4. Healthcare & Long-term Care Expenses
While the general rise in expenses by 3% per year would seem challenging enough, there are two categories of expenses that have been rising by much more than 3% per year for the past decade: healthcare and long-term care. Since healthcare often becomes a large expense for individuals 65 year of age and older, it’s created additional pressure on the retirement funding gap.
Prescription drugs shot up nearly 40% over the past decade, outpacing overall inflation (~32.5%) (nypost.com).
Overall healthcare spending jumped 7.5% from 2022 to 2023, reaching $4.9 trillion—well above historical averages (healthsystemtracker.org).
In-home long-term care is also hefty—median rates for a home health aide have skyrocketed, with 24-hour care nearing $290,000 annually in some cases (wsj.com).
5. The Solution: Projections That Embrace Uncertainty
When retirement may stretch 20+ years, and inflation isn’t uniform across expense categories, guessing leads to risk. A projection-driven strategy helps you:
Model life expectancy: living until age 85 – 95 (depending on family longevity)
Incorporate general inflation (3%) on your expenses within your retirement projections
Determine if you have enough assets to retire comfortably
Whether your plan shows a wide cushion or flags a potential shortfall, you’ll make confident decisions—about savings, investments, expense reduction, or part-time work—instead of crossing your fingers.
6. Working with a Fee-Based Financial Planner Can Help
Here’s the bottom line: Living longer is wonderful, but it demands more planning in the retirement years as inflation, taxes, life expectancy, and long-term care risks continue to create larger funding gaps for retirees.
A fee-based financial planner can help you run personalized retirement projections, taking these variables into account—so you retire with confidence. And if the real world turns out kinder than your model, that's a bonus. If you would like to learn more about our fee-based retirement planning services, please feel free to visit our website at: Greenbush Financial Group – Financial Planning.
Learn more about our financial planning services here.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs)
How does longer life expectancy affect retirement planning?
People are living well into their 80s and 90s, meaning retirement savings must cover 20–30 years or more. The longer you live, the more years your portfolio must fund, increasing the importance of conservative withdrawal rates and sustainable planning.
Why is inflation such a big risk for retirees?
Inflation steadily raises the cost of living, reducing the purchasing power of fixed income sources like pensions. Even at a modest 3% inflation rate, living expenses can rise more than 50% over 15 years, requiring larger withdrawals from savings.
How does inflation impact pensions and fixed income sources?
Most pensions don’t increase with inflation, so their purchasing power declines over time. A pension that comfortably covers expenses at retirement may fall short within 10–15 years as costs rise, forcing retirees to draw more from savings.
Why are healthcare and long-term care costs such a concern in retirement?
Healthcare and long-term care expenses have been increasing faster than general inflation. Costs for prescriptions, medical services, and in-home care can grow at 5–7% annually, putting additional strain on retirement savings.
How can retirees plan for inflation and longevity risk?
Running detailed retirement projections that factor in inflation, longer life expectancy, and varying rates of return helps reveal whether savings are sufficient. This approach allows retirees to make informed decisions about spending, investing, and lifestyle adjustments.
When should retirees work with a financial planner?
Consulting a fee-based financial planner early in the retirement planning process can help test different inflation and longevity scenarios. A planner can build customized projections and ensure your plan remains flexible as costs and life circumstances evolve.
