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How Much Money Will You Need To Retire?

According to a recent report from the Society of Actuaries (SOA), Americans are living longer.  Below are some statistics that show the life expectancy for Americans 65 years old that are considered in “average” health.

  • Male (Single) at Age 65 (average health) – has a 40% chance to live at least to age 85.
  • Male (Single) at Age 65 (average health) – has a 20% chance to live at least to age 90.
  • Female (Single) at Age 65 (average health) – has a 53% chance to live at least to age 85.
  • Female (Single) at Age 65 (average health) – has a 31% chance to live at least to age 90.
  • Married Couple at Age 65 (average health) – there is a 72% chance that one will survive until at least age 85.
  • Married Couple at Age 65 (average health) – there is a 45% chance that one will survive until at least age 90.

According to the study, not only are we living longer, but most are underestimating how long they will live.  If you retire at age 65, there is a good chance you will be in retirement for 20 years or longer.

It’s great news that Americans are living longer, but living longer also requires more money. Have you ever attempted to calculate how much it will take your family to live on in retirement?  Most haven’t, but below is a simple calculation that will help you estimate this number.  Let’s estimate you will need $70,000 per year after you retire.  First, you subtract any social security or pensions you are projected to receive.   The remaining amount is what will need to come from your savings and investments.  Many studies have concluded that retirees can withdraw 4% per year from their savings and investments with a good probability that it will last 20 – 30 years.  See the example below:

Amount needed in retirement (per year) – $70,000
Less: Social Security Benefits (annually) – ($20,000)
Less: Pension (annually) – ($15,000)
Equals: savings and investments need annually = $35,000

 

Total amount of total savings and investments needed to generate $35,000 annually is $875,000 ($875,000 * 4% = $35,000).  After running the numbers, we often see that it takes much more to live off of in retirement than we expect.

As we live longer everyone needs to consider their retirement needs.  It’s a great idea to calculate how much it will take for you to live on in retirement.  Since you could be in retirement for 20 years or more, it’s better to plan now than to hope you will have enough when you retire because you don’t want to run out of money before you run out of life.

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