I'm a financial planner and I'm updating a couple's retirement projection. I entered their current account balances into their old projections and they run out of money at his age 88 (we run projections to age 100). Confused, I looked at the original results-they made it to age 100 and had a present value of $750k left at that point. That's a big difference. What gives?
Looking at the original projection run, their current lifestyle's annual need is nearly 20% higher than the inflation adjusted 2017 need based on their lifestyle from the original projections (2011). This new, higher retirement need was also a "I think we could live on just $12k/month" amount that was lower than they spend now: $290k gross with only savings of $31k in SIMPLEs. Then, not only has their taxable savings not grown like they expected to previously, the account balance is actually lower than it was in 2011.Their plan in 2011 was to sell both their main home and their vacation home and build and live full time in their "Dream House" on a lot they already owned. By doing that, the equity in their two properties should pay for the build AND they could put $100k into savings, along with monthly contributions. Obviously you can't skimp on a dream so actual costs kept piling up. No extra equity to put into savings. Then they start pulling money out of their accounts. Now they are living in the house and expenses for the one house is higher than when they had two houses.
Wanting to have an answer for them, I keep re-running scenarios until I find one that gets them to the same spot there were based on their 2011 expectations. The answer is instead of retiring at 65, they retire at 72. That house, their "Dream", cost them 7 years of retirement. Actually, it's not even the house that did them in. The original plan worked. It was the cost overruns and lifestyle inflation that went along with the fancy new house. It's not going to be a pleasant meeting to tell them that, while you thought you only had 3 years until retirement, just kidding, you actually still have a decade left.
Fortunately they do have equity in the house so they have options. But damn. That's an expensive dream.