2) Your expenses won’t stay static during retirement.
You can’t calculate the longevity of your money merely by what you spend today. From familial financial emergencies, to tree limbs falling on garages, to medical and health issues, if you could somehow look into the future and have your retirement expenditures applied to a line graph on a spreadsheet, it would probably look like a jagged mountain range (with a lot more expensive peaks than low-cost valleys).
3) Inflation takes big bites out of your buying power.
Even if inflation remains low, at, say, just 3%, on $1 million saved, you’re losing $30,000 a year in purchasing power.
Hard to wrap your head around, isn’t it?
Inflation is one of those things that, for most people, seems to fall just outside their retirement preparation consciousness. It shouldn’t. Think of inflation as a never ending expense that gives you nothing in return. Inflation (and low interest rates) are the reasons you can no longer feel good about having $1 million stashed in a typical savings account (basically, inflation means you’re losing buying power every month).
4) Distribution Rate (the “draw down” of your savings).
This is where a well-allocated and conscientiously invested portfolio is essential to help make sure you don’t outlive your money. When you begin using the principal of your savings to pay your day-to-day expenses, you not only deflate your nest egg (and shorten its life), your progressively smaller nest egg now generates less income.