One of the most common questions we hear, with regard to retirement planning, is “How much money do I need to save?”
We can certainly understand why that question might keep you up at night. Putting a price tag on retirement is a daunting process, and it’s normal to worry about whether you’ve underestimated your needs somehow.
There’s another way to look at retirement planning, that might actually be more helpful. Ask yourself, “How long will I need my retirement income?” The point of establishing a retirement income is to ensure that your living expenses will be covered, for the rest of your life, after you stop working and earning a regular paycheck. So it makes sense to estimate how long you will need that income.
Of course, you don’t possess psychic powers, and no one knows exactly how long they will live. But in most cases, an educated guess can help you arrive at a reasonable answer.
Consider this: In 1900, the average life expectancy was about 50 years old. People didn’t really plan for retirement; they just worked until they got old or sick, and perhaps relied upon family members in their final months or few years of life. Today, our average life expectancy is about 85. And that could continue to increase, thanks to higher standards of healthcare and nutrition!
Your personal genetic makeup is another thing to consider. Do people in your family tend to live well into their 90s? If so, you could be looking at a very long retirement.
Third, consider the age at which you plan to retire. In 1950, people retired at an average age of 68. Today, that age has dropped to about 62. Not only are we living longer; we’re retiring earlier, too!
Once you have an idea of how long your retirement could last, you should ask yourself how much income you need to generate each year. Working backwards from that number, you could arrive at a fairly dependable savings goal.
We can help with this process. Call us for an appointment, and we can help you investigate your retirement income needs, as well as show you different ways to generate the income you will need in retirement.
Sources of Statistics:
McKinsey Global Institute. 2008.