How much you will need for retirement is a question that everyone alive will need to address. There is a lot of confusion since most commentators advise different things. Here is my take that should be shared with everyone you know: Retirement spending doesnt drop as much as most people believe. Yes, you dont have education to pay for. Your food bills normally drop since people tend to have more time to shop and compare prices. Moreover, retirees spend less on commuting and wardrobe maintenance. However, retirees dont just sit in rocking chairs. They tend to spend more on leisure travel and other events. Medical and dental expenses rise. They also tend to want to help kids out and even help grand kids out. Finally, as they get older, they might need some form of independent or assisted living,which could cause costs to sky rocket. From a fair reading of articles on this, most of the smart planners recommend that you have enough earnings to supplement a pension( if you get a pension) to equal at least 80% of your per-retirement earnings. Thus, if you and your spouse were earning $100,000 now, you would want your retirement to spin off at least $80,000 of yearly income. In addition, you should have extra earnings to help cover inflation. My suggestion is to use a 3% capitalization factor. Here is what this means in English. Lets say that you want to receive $80,000 a year in retirement. However, you will only get $60,000 when you consider a pension that your spouse gets and social security. Thus, you have a $20,000 yearly shortfall. You would take the $20,000 and divide by 3% ( which is called the capitalization factor),which would result in your needing $666667 in investments. This also assumes that you have no debt including your mortgage! Sandys tip:: Dont forget to factor in social security to the equation. Material partly derived from Achieve Financial Freedom: Big Time
Posted on: Tue, 15 Jul 2014 13:33:27 +0000
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