There are several factors which can play a role in how much money you will need in retirement.
Return on investments during your retirement– I could quote from a variety of sources many numbers that are argued up and down. But for simplicity lets just say you need to try and keep up if not out pace inflation. I usually suggest around 5%.
Inflation – Assuming a 5% average annual growth rate on investments & 4% inflation, $1,000,000 dollars could provide a starting end of year annual withdrawal of $38,163 and would have to increase each year until reaching $119,019 in the final 30th year. At this point the $1,000,000 would be depleted, (That’s inflation) calculations are approximations only.
Life expectancy – Life expectancy is simply how long you are expected to live. Some factors might be, family history, lifestyle choices you have made, exercise or lack there of and finally your current starting health.
According to the Social Security Administration
Male age 60 will live 21.27 years
Fem age 60 will live 24.30 years
Male age 65 will live 18.24 years
Fem age 65 will live 20.19 years
Male age 70 will live 14.03 years
Fem age 70 will live 16.33 years
While these numbers give us some helpful information, personally I would plan for at least 1 spouse to be alive 30 years so you don’t run out of money.
Life Style – How do you expect to live in retirement? Some expect to live better than during there working years while others plan to dial down their expenses.
Fidelity says you need 8 x your ending salary while T. Rowe Price claims you should have 75% of your pre-retirement income. Personally I use on the low side 60% up to the high side of 80% of your last year pre-retirement income as a starting point.
Other Considerations – While we will have to assume your Medicare supplement or Medicare advantage plan will cover most of your health related insurance costs. We do still have some rather large holes to consider.
- Long Term Care – Usually a policy or funds set aside for when a person needs help due to the inability to perform 3-5 activities of daily living. Things like eating, bathing, dressing etc.
- Emergencies – major issues with a house, mold, roof replacement, health issues outside of your covered insurance like experimental treatments.
- Vacations – for some this is the whole reason for retirement, vacations can range from the budget minded of $1,500 per year to the higher end of $20-50,000 for some.
- Bad luck in the market or poor performing investments – If you have your money invested in things that have no floor or protection, in a large loss assuming you needed your money during the down turn.
In the end, it really does depend uniquely on you and how and what you expect out of your retirement.
SO HERE’S THE NUMBERS!
Assuming you made $100,000 in your last year and wanted to retire on 80% for the next 30 years as suggested above.
Using These Factors:
Inflation of 4%
Investment return of 5%
Assuming no other income-
$2,096,228 would need to be available at retirement.
- Income provided in 1st year = $ 80,000
- Income provided in 30th year = $ 249,492.11
All money would be depleted in the 30th year with these assumptions.
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