Just How Much Money Do You Really Need for Retirement?

| October 17, 2016 | 0 Comments | Email This Post Email This Post
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Just How Much Money Do You Really Need for Retirement?Dan Caplinger: In trying to come up with a number for how much their clients need in order to retire, many financial advisors look at the issue completely backwards. It’s easy from an analytical viewpoint to take what someone is spending now and then figure out how much you’ll need in order to sustain that level of spending in the future, and that’s why so many of the rules of thumb concerning retirement income needs are so popular.

The problem with that perspective is that it doesn’t address the fact that most people intend to have completely different spending patterns in retirement than they did during their careers. For some, expenses will drop because they no longer have to pay the costs of working, instead living modest lives with inexpensive tastes. For others, things like expensive hobbies and extensive travel plans could make expenses rise dramatically.

The more pragmatic approach is to save as much as you reasonably can, invest well, and see how things work out. Then you can plan your retirement accordingly, spending more or less depending on how well your nest egg managed to grow. By using this approach, you can keep an open mind toward what your retirement will look like, avoiding the potential disappointment of falling short of planned dollar amounts and instead looking to live life to its fullest regardless of your financial situation.

How’s your health?

Brian Feroldi: Arriving at the ideal retirement number is always a guessing game, so my general advice is to be conservative with your estimates and build in as much wiggle room as possible. That way, if you get hit with an unexpected bill, then you’ll be in a better position to handle it financially.

One of the biggest potential curveballs that retirees face relates to their spending on healthcare. A recent study by Fidelity Investments showed that the “average” 65-year-old couple is expected to spend $260,000 on out-of-pocket costs to cover medical expenses throughout their retirement. That’s a huge figure, and it also doesn’t include the cost of long-term care insurance. If you think you could wind up needed long-term care — and an estimated 35% of people over age 65 will spend at least some time in a long-term care facility — then you can bump up that figure by another $130,000.

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Category: Anniversary, Retirement Planning

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