Senior Spotlight: Calculating Retirement Savings

Life is good! And that good life is getting longer as life expectancy rates increase. Yet many retirees worry about outliving their money, and that is a valid concern given that Social Security was created at a time when the life expectancy was 58 for men and 62 for women (back in the 1930’s). Today we wanted to share some considerations for calculating retirement savings from Yahoo! Finance, from an article just published today titled ‘Retirement Savings: Here’s How Much Cash Baby Boomers Need To Retire in the Next 5 Years.'

*Please note that these are insights and information only – NOT financial advice. Please be sure to chat with a certified financial professional to determine the financial strategies that are most applicable & beneficial to you.

LIFE EXPECTANCY

According to the Yahoo! read:

| A 62-year old man has a 40% chance of living to 85

| 1 in 5 men will live to 90

| Women have a 52% chance of living to 85 once they have reached the age of 62

| 31% of women will live to 90; 1 in 5 will live to 95

FINDING YOUR NUMBER

‘Your number’ refers to how much money you will need in your savings account to live a comfortable or at least stable retirement lifestyle. Yahoo! reminds us that “the right amount of cash will be unique to each person.” Here are the ways the publication suggests you can approach your calculations:

#1: Plan Based on a Multiplier of Your Income

A retirement income specialist from the Creative Legacy Group suggests having 10-12x your current income saved for retirement, to allow a comfortable flex for inflation, a potential recession and even longer life expectancies in the years to come. Other industry professionals consider 8-9x your income a conservative approach.

#2: Plan Based on a Percentage of Your Income

Another retirement savings approach suggests that retirees may wish to plan for 60-80% of their current income per year as an annual retirement rate. The lower figure is based upon the possibility that retirees typically pay less taxes, are no longer caring for dependents and may not have a mortgage. It’s always better to overestimate your living expenses in retirement however, than underestimate.

#3: Expenses-Based Planning and the Rule of 4

This strategy encourages retirees to plan how much savings they will need based on their projected expenses. CEO of Finacer.com, Johannes Larsson, proposes that “As a rule of thumb, aim for a retirement savings balance that is at least 25 times your projected annual expenses during retirement, adjusted for inflation.” This aligns with the 4% rule that if you withdraw 4% of your retirement savings each year, will your money last 30 years or more?

The reality is that no single retirement strategy may serve you your entire post-working lifestyle; the only thing that is certain is that things will change! We encourage you to read the article in full here for ideas on a 2-year phase into retirement as well as emergency planning and how much to pad your ‘nest egg.’

The most important thing you can do with this information is to use it to create a list of questions and calculations to approach your own financial planning team with. Every situation is unique and requires a custom plan with regular review.

Best wishes on building a plan that works for you,

Bobbi

Bobbi Decker
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Broker Associate
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www.bobbidecker.com


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