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“How Much Do You Need For Retirement?” - Dumb question?
By JLP | June 20, 2008
The internet, magazines, and books on personal finance are chock full of calculators and projections to help you figure out “your number” - the usually astronomical sum of money that it is allegedly going to take for you to live off your portfolio of securities, not work, and still maintain some semblance of the same lifestyle you had while you were working.
The exercise seems reasonable - necessary even - but the problem is that the results are almost entirely arbitrary, especially if you are more than 10 years away from retirement.
There are just too many variables:
- The rate of inflation
- The age you’ll retire
- The age you’ll die
- The rate of return of your assets (and at which point along the your personal time horizon the booms and busts occur)
- Your asset allocation
- How much social security you’ll get - and how/if/when the system will be restructured
- What healthcare will cost - and how/if/when the system will be restructured
- What your taxes will be - and how/if/when the system will be restructured
- Etc
Any shift in any one of these variables can drastically alter the final figure that pops up, telling you how much you need to have saved in order to retire at X age or how much each year you need to be putting away.
That doesn’t mean you shouldn’t strive to save as much as you can. After all, I’ve never heard anybody complain about having too much saved for retirement.
Still, it may mean that there’s no reason to be having panic attacks over the fact that some calculator says you need $3.5M in the bank before you can retire comfortably. You might be able to get by just fine on much less than that - or hey, you might even die before that “age 99″ you plugged in.
More from Meg at The World of Wealth
Topics: Retirement Planning |