Last year USA Today columnist Rodney Brooks wrote “… you’ve banked a cool $1 million for your retirement years. Think you’re set? … you still might be short.”
I disagree with Mr. Brooks. Here’s why: Success comes from understanding what you’ll need in income (i.e., discretionary income vs. fixed income) the year before retirement. You’ll also want to know how you’re generating income from your assets at least one year before your first distribution. The further in advance you can determine these things, the more confident you will probably be with your planning.
Retirement planning isn’t about the size of the nest egg; it’s about the income someone can expect from all sources. This is where to begin your retirement planning analysis. Calculate what you’ll be generating, and cross-check that with your expected budget.
Successful businesses rely on budgets. Think of your retirement like a business. Build a budget. Your budget will tell you if $1 million is a goal you need to reach.
How far should your budget project? In 2013, the World Health Organization pegged overall life expectancy for Americans at 79 years, 77 for men and 82 for women.
Someone who retires at 65 with $500,000 saved and a Social Security retirement benefit of $2,000 per month, plus a spousal Social Security retirement benefit of $1,400 per month and a pension of, say, $20,000 per year could reasonably expect an annual income of $80,000 at the start of their retirement. That’s comparable to an income of almost $110,000 for a couple putting 15 percent into their 401(k) each year during their working years. So you don’t necessarily need $1 million nest egg to comfortably retire.
I realize $80,000 per year may not be everyone’s idea of comfort. But many American retirees would be happy with that income. Have you analyzed your anticipated retirement income?
Please send your comments to me at [email protected].