That is an age old question facing many Americans today. If you think that this question is limited to seniors, then please think again. If you don’t know when you are going to retire, or how much money you will need, then how can you set a retirement goal? That is the primary reason a good advisor will ask you a lot of questions surrounding the topic of retirement. Whether you are in your twenties, fifties, or even seventies, you need to set parameters so you can develop a plan. One of the first things I mention to my clients is that their plan will always be evolving and changing. Life happens, and usually in the most unpredictable ways. Maybe you take up a new and expensive hobby, change your retirement date, or your very idea of retirement. For many people today, retirement is not sitting around playing cards. Rather, it is about working or volunteering at something they love, visiting family that live far away, or taking that trip they have dreamed about for years. I say that to open peoples’ minds to how many great things retirement can entail. The next question should be, how do I pay for it?
This brings us back to the title of this posting, and all the problems and possibilities that go along with it. An old rule of thumb was that you would need about 70% of your pre-retirement income to retire comfortably. This was based on a study done so long ago, that most of the researcher assumptions and guidelines no longer apply. So here are a few thoughts to ponder when considering if you will really need less income and fall into a lower tax bracket. Will you still have a mortgage (1st or 2nd) to pay for? Will you still have educational expenses (your children or your own) to pay for? What about the ever increasing cost of heating your home, or paying your electric bill? Not to mention the high cost of health care, which is a double whammy. Not only are health care costs advancing faster than inflation, but we are living longer, and requiring more, costlier health care.
Now PLEASE pay ATTENTION to the following two thoughts: To put it in perspective, what is the day of the week when you spend the most money? If you answered with one of the weekend days, you agree with the majority of the population. Now keeping that in mind, when you are retired, isn’t every day a Saturday or Sunday? If a light bulb just went off in your mind, you are on the right track to gaining some important perspective. My final point requires just a small amount of math on your part, or you can simply trust me…it's your call. It will cost the average couple $219,000 to eat in retirement. Yes, you read that right, $219,000 to eat. This is based on never going out to eat, and cooking all of your meals. If you figure it costs $5 a meal, per person, for three meals a day, and there are 365 days in a year, and the average retirement lasts 20 years…you have $219,000! That is not taking into consideration the cost of inflation, or even the fuel you use to cook your food. Also, I personally have never met anyone who never goes out to eat.
These numbers are not meant to scare you, but rather to give you a better perspective as to how much retirement can cost. For most people, retirement will not cost less than their working years. In fact, according to some recent studies, the higher your current income, the more money as a percentage you will need to maintain your standard of living. In fact, many middle class and upper class people will need the same or more money than they are making currently to retire in the same lifestyle. So the next time you meet with your financial advisor, or are using a retirement planning tool, please aim as close to 100% of your income as you can for your retirement. Chances are that if 70% can’t get the job done today, there won’t be much choice in the future.
