An Important Question to Ask About Retirement

As you plan for retirement, you will probably ask yourself a question that we hear all the time: “How much money do I need to save?”

That’s certainly an important consideration, and setting a savings goal is obviously a large part of retirement planning. But there’s another way to approach this topic, that you might actually find more helpful in setting an appropriate savings goal. Ask yourself, “How long will I need my retirement income?”

Setting a savings goal is not really about the amount of money you set aside. It’s actually about establishing income that will last you for the rest of your life, once you retire. So you can see how switching your thinking on this issue can help you arrive at a more realistic benchmark for retirement.

Of course, you’ll need to guess at the answer. No one has a crystal ball that can predict their exact lifespan! But there are many clues that can help you arrive at a reasonable answer to this question.

For example, the average life expectancy in 1900 was around 50 years. Today, life expectancy has increased to around age 85. That’s quite a large difference! We can thank better access to nutritious food, and advanced medical technology, for this incredible advancement.

So, the first thing to remember is your life expectancy. Your age at retirement is the second piece of the puzzle. In 1950, the average age at retirement was 68, but today we see people retiring at an average age of 62. What that means is that you’re likely to live longer than previous generations of retirees, but also retire sooner.

Today, the average 65-year-old retiree can expect to live another 20 years or more. That’s terrific news, but it does pose a challenge: How long will your retirement income last?

As you can see, setting an arbitrary savings goal is a good start, but it won’t necessarily address all of your retirement income needs. You need to also focus on how long you need retirement income, and of course how much you need each year. Then, working backwards from those figures, you can establish a more realistic savings goal.

We can help with that part. Give us a call, and we can help you decide upon a reasonable retirement budget, set a date for retirement, and explore different ways to make your income last for the rest of your life.