Sushi Money

    Over the past few years it has become apparent that most Americans need to save a lot more for their retirement than they think.  And that most Americans are not well prepared and not saving enough to ensure a financially secure retirement.  But we’ve also seen where some have questioned if the metrics and numbers that most financial planners say we need are too high- and unreachable for many of us.   Even still, it’s hard to argue with the viewpoint that saving too little may be far more damaging than saving too much.  But how much is enough?  That’s were a good financial planner comes in with a great deal of analysis. 

      So is there a right answer?  As far as a specific amount of retirement savings, probably not in general.  It’s an answer unique to every individual and family.   The statistics are somewhat amazing really, and some say we’ll need 10-12 times our pre-retirement salary put up to fund our retirement.  Historically, many planners have advocated that we anticipate an income replacement ratio in retirement of 60% to 80% of our pre-retirement income.  Those numbers assume a great deal…  empty-nesters with no children at home, mortgage paid off, spending patterns reduced, etc.  Are they right?  It all depends, and many people argue that we should plan for spending 100% of our pre-retirement income in retirement!  There’s a crucial consideration however…

What kind of lifestyle do you want to live in retirement!?  That, my friends, is the real question.

     Money magazine online has written about a couple in their fifties who are Investing in the Home Stretch to Retirement.  Based on the information provided, this couple has done a pretty solid job of preparing for their retirement.  They make over $100,000 per year with a house paid off, and have savings of over $500,000.  

If their money keeps growing at 7 percent a year for the next eight years, the Paines will have nearly $1 million. At a 4 percent withdrawal rate, the couple can safely tap $40,000 a year, says Cincinnati financial planner Erik Christman. Even with Social Security, their income would be only two-thirds what they’re making now. “They are going to be challenged to retire, even in eight years,” Christman says.

     So let me understand this… here’s a couple that may have over $1 million dollars saved and can work with a conservative 4% withdrawal rate, achieving at least $40,000 annual income, plus social security… and they’re going to be challenged to retire?   I think it means they’re going to be challenged to retire to the lifestyle they believe they want to maintain.   And I have to say it bothers me when journalists and planners put it that way because most Americans would be lucky, and very thankful, to be in that situation when they retire.  I’m not trying to be disrespectful to this couple either- they’ve worked very hard and should rightfully be proud of their accomplishments.   But being challenged to retire?    There’s a lot of folks in the country that will be challenged to retire, and it’s not this couple.  They’ll have income, choices and opportunity.  They may be limited  in their choices based on their retirement income… but they will  have choices, and money to use.

So in general, we may be challenged in retirement to fund certain goals based on our lifestyle choices.  For me it then boils down to two primary questions:

• What kind of retirement lifestyle do we want to have?

• How are we going to save enough money to fund that retirement lifestyle we want?

   Answering those questions can help establish a foundation that we work with throughout our career and lives.  If we have some idea or goal for where we are going, then we can move foward to get there.  We need to take some specific actions to do so… and keep working on them!   For many people, it means we need to take a realistic assessment of where we are, how much we can save, and how much we may accumulate to spend annually in retirement.  Sometimes that’s a sobering assessment.  An excellent article makes the point that this won’t be our parent’s retirement!  Most of us save, and have saved, far too little rather than too much. There’s a lot of unknowns out there, especially with healthcare costs and longevity.  But I’d rather have some idea of what the future’s going to look like so I’m better prepared to make resolutions along the way, and realistic choices when I get close to retirement. 

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