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How much Will I Need to Retire?

How much Will I Need to Retire?

By Larry Lane for

With the advent of modern medicine and technology, most can expect to live another 25-30 years or more after retirement. According to the Center for Disease Control, if you make it to 65, you can expect to reach 83. If you’re married, there is a 66% chance, one of you will reach 85 and about a 40% chance you may reach 90. If you are younger, in your 30’s or 40s, I would plan expect to have a lifespan of perhaps 95 or 100.

Wildcards Social Security and health care will be a huge wild card when determining your retirement needs. If you have 10 to 20 years until retirement, there is no way to project what the costs will be. Will the retirement age be changed? Will there be universal health care? What will social security payouts be a decade or two? Due to social security being so far in debt and the crush of retirees entering in the system, there will have to be some massive changes in the system. The retirement age will be raised, taxes will be raised or the amount of payouts will be decreased. Perhaps all three will occur.

Several Factors to Consider

What will your investments earn? If you are 100% allocated in stocks, you can expect an 8-10% return if you have a long time horizon. As you get closer to retirement, you may have to reallocate your portfolio into a combination of stocks and bonds which will decrease your portfolio’s volatility, but also your total return.

1) If you own a home, will it be paid off upon your retirement? A home can be a great investment. Buy a home now and your mortgage payment will be exactly the same in 30 years (provided you don’t refinance). Investing in a house can be an excellent inflation hedge.

2) Will you stay in that home or move to a new locale in retirement? Will you keep your home long term or move? If you sell your home, the first $250,000 in profit (if you own one) is tax free. Will you reinvest that money or buy another home? If your move takes you to a location, will you have a lower cost of living?

3) Long Term Care Insurance. While it’s impossible to know how much long term care insurance will cost five, 10 or twenty years from now, you have to factor in the cost of long term care insurance into your retirement plans. Reach out to an insurance agent who sells long term care insurance and you’ll able to see where the cost trends are headed.

4) Health care costs (always a big unknown) Will congress pass universal health care? Will Medicare even be available 20 years from now? If you are working, ask your human resources person what the cost of health care cost would be for your situation unsubsidized. You can expect to pay somewhere in the neighborhood of $360 per month for health care insurance or more for a single person. If the cost of health care rises just 6% annually, the cost may reach $720 per month or $8640 annually 12 years from now.

5) Hobbies /travel: Do you have any expensive hobbies or would you like to pursue a life of travel? Fortunately air fare has remained fairly stable over the last 10 years. However, costs such as eating out, and entertainment have been rising over the last several years. Have you budgeted enough to have a good life in your retirement years?

6) What will be the status on social security when you retire? To see how you can expect to receive when you retire, go to the Social Security website HERE. The calculator on the site will give you an estimate of how much you can expect to receive depending on when you take your retirement income.

Academic studies have shown that you will be able to withdraw 4% per year on an inflationary adjusted basis without eroding your principal. If you are 65 years old and have a retirement account of $1,000,000, you can safely withdraw $40,000. While $40,000 plus social security may seem like a livable wage today, there is always the specter of inflation looming. Given an average 3% inflation rate, your cost of living will double in 24 years. Your $40,000 in purchasing power will be cut in half to just roughly $20,000. Could you live on $20,000 plus your social security check?

If you are in the tiny minority of people who are eligible for a pension, congratulations! Pension payouts will vary greatly depending on your earnings and years of service with the company you work for. Should you be one of the lucky few, you should account for pension money in your overall retirement. Check with your human resources manager regarding your pension requirements. Remember, a company pension is only available if there is a company in the future. Do not rely solely on your pension as retirement income. Just ask the employees of Enron.

Sit down and reverse engineer your life. Think about what your ideal retirement situation would look like 10, 20, 30 years into the future. Would you like to dedicate your time to a non-profit organization? Will you start a small business to augment your retirement income? Would you like to travel and see the world? Do you envision living in your home forever, or will you move to a warmer climate? If you’re planning a move, what do you think your rent/mortgage will be? Successful businesses create a business plan; you should create a “life plan.” Make an honest assessment of your life and goals and do it now.

By being a consistent investor and creating a life plan, you will increase your chances of a successful retirement. Living the life you want in the future is all of about living within your means, making some sacrifices today and planning for tomorrow.

The article above is information of a general nature and the information provided may not apply to your personal situation. Please consult your financial planner or licensed professional for investment advice.

Larry Lane PhotoAbout Author
Larry Lane is the head blogger and biz dev for InvestorZoo a social networking site dedicated to personal finance. Larry Lane is the editor for, a social networking site specializing in personal finance. Email questions and comments to [email protected]

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