The 3 Biggest Unknowns That Could Wreck Your Retirement

Perhaps the most troubling thing about saving for retirement is the uncertainty. There is no magic savings number, and there are many variables that could affect how much money you need to cover your expenses.

The three biggest concerns most people have today are rising healthcare costs, possible changes to Social Security benefits, and inflation, according to a recent Fidelity survey -- and they're valid. Each has the potential to devastate your savings, but you can minimize the risks by planning appropriately. Try these tips.

1. Rising healthcare costs

Over the last 20 years, the cost of medical care has risen 95.86%, according to Bureau of Labor Statistics data. That's an average of 3.42% per year. To put that in perspective, if that inflation rate continues, a medical expense that costs $10,000 this year may cost $10,342 next year. And that trend may only get worse. Expenditure projections from the Center for Medicare & Medicaid Services predict that national health spending is expected to grow by 5.5% per year between 2018 and 2027.

It's difficult to put an exact number on retirement healthcare costs because the figure above is only an estimate. It also depends on your personal and familial health history. You're likely to spend more on healthcare in retirement if you have unhealthy habits or a family history of a chronic illness than someone who is relatively healthy. But even healthy people shouldn't just assume they won't have any significant medical expenses in retirement. A freak accident could leave you seriously injured or unable to care for yourself, so it's best to plan for the worst-case scenario.

Medicare will cover some of your retirement healthcare costs, but it won't cover everything. You'll still have premiums, deductibles, and copays, and if you need dental work, hearing aids, or long-term care, you'll have to pay for them on your own. Consider investing in a Medigap policy to cover what Medicare doesn't, and if you think there's a chance you may need long-term care in the future, think about adding a long-term care insurance policy to your retirement plan as well.

You should also build the cost of retirement healthcare into your savings plan. The average 65-year-old couple retiring today will need about $285,000 to cover their retirement medical expenses, according to Fidelity, and this figure doesn't include services that Medicare doesn't cover. If they have high prescription drug costs, a 65-year-old couple retiring in 2019 could spend as much as $363,000 on healthcare, according to the Employee Benefit Research Institute's calculations. And if retirement is a long way off for you, you might need even more than this. You can use these numbers as a baseline, but it's best to figure high to be safe. Once you've got your healthcare estimate, add this to your retirement living expense estimate and recalculate how much you need to save each month to hit your new goal.

2. Social Security benefits

There's a common belief that Social Security is in trouble and it isn't going to be around for future generations, but this is only partially true. The latest Social Security Trustees Report says that the program's trust funds are expected to be depleted by 2035 if the government doesn't make any changes to the program. But it's not going away. Even without any changes, it would still be able to pay out 80% of its expected benefits.

We don't know what the future's going to look like for Social Security yet. Possible solutions include:

• Raising the Social Security tax rate (currently 12.4%, split evenly between employee and employer).
• Raising the ceiling on income subject to Social Security tax (capped at $132,900 in 2019).
• Raising the full retirement age (currently 66 or 67, depending on your birth year).
• Reducing benefits.
• Reducing the cost-of-living adjustments (COLAs) that help Social Security keep pace with inflation.

The government may choose one or a combination of these strategies to save the program, but whatever the solution, it's likely that Social Security won't go as far in the future as it does today. This is concerning because millions of retirees rely on Social Security as their primary source of income.

Future generations can't afford to do that. Social Security was only ever intended to be a supplement to your personal retirement savings, and you should treat it as such. If you haven't already, create a my Social Security account and use it to estimate how much you can actually expect from Social Security. Multiply your benefit by 12 and then by the number of years you expect to receive benefits to determine your estimated lifetime benefit and then subtract this from your total retirement expenses to figure out how much you need to save on your own. You may want to save a little extra just in case the government does decide to slash Social Security benefits in the future.

3. Inflation

Inflation is inevitable, but it's difficult to know exactly how much costs will rise over time. Historically, the inflation rate has averaged about 3% annually, though the inflation rate for any given year may be higher or lower than this. But there's no way to know what the future holds.

You can prepare for inflation by factoring it into your retirement calculations. Most retirement calculators use a 3% annual inflation rate, so you don't have to worry about this, but if you want to be conservative, try using a 4% inflation rate instead. That way, if your living expenses begin to rise sharply, you'll be prepared.

You'll never take all the risk out of your retirement plan, but by being mindful of the three challenges listed above and doing what you can to plan for them, you'll increase your odds of enjoying a comfortable retirement.

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