Remember the commercials for a financial services company showing people walking around with various numbers? The number was the amount of money needed for retirement. It varied by person, but of course the company could help you get to your number.
I didn’t think much about it at the time other than the fact that they’re trying to sell you something (and of course that it would be silly for people to walk around with a number over their head).
A recent discussion with friends about how much we needed to save for retirement brought it to mind. How can you plan for retirement without knowing how much you need to save?
The company that is used for my work 401K has a retirement calculator. I would guess most financial service companies offer one. They pretty much work the same.
Enter pertinent demographics, current savings, planned savings and it calculators your shortage or overage you’ll have when your estimated lifespan ends.
The problem is that the estimated income required to live on doesn’t seem realistic. I don’t believe I will need as much money in retirement as most calculators state. A better number to calculate required income would be to use amount of money required for expenses each month versus income. If I don’t spend all I earn, why would that the starting point of figuring out what I need for retirement?
Many expenses are eliminated once you are no longer working. 401K contributions, commuting expenses, and professional expenses will be eliminated.
Will your housing costs change upon retirement? We plan to change our housing situation (link to previous post). No matter what we do, the mortgage will be eliminated before retirement so that expense will be gone.
Will there be new or increased expenses? Health care expenses will probably increase due to higher utilization. Many retirees spend more time traveling (at least initially) now that pesky work is no longer an impediment.
You need to know your number for reliable retirement planning. My number is $450,000. So, what’s your number?
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