Retirement, or the Dance between Longevity and Your Money

Retirement, or the Dance between Longevity and Your Money

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Retirement Dance between Longevity and Money

Do you have a million bucks in the bank yet?

If not, this is for you.

It’s the clarion call that I wish I had heard long before I did.

And it’s one that, whatever your age, is critical for you to invest the next three or four minutes in.

There’s a very good chance you’re going to live into your 90s.  And there is a good chance you’re going to want to think about retiring around age 65.

My goal today is to get you to do some very simple math, to figure out what kind of nest egg you’re going to have to have by the time you’re 65.

Let’s see.  Take a wild guess at how much you’ll need each year to live.  Hopefully you’ll have a paid-off house to live in or some other reasonable solution.  Say you can live on $5,000 a month, or $60,000 per year, net.  Meaning, available to spend after any taxes.  You’ll need to fund 25 years (from age 65 to 90) at $60,000 per year, or $1.5 million.

Okay, maybe you have faith that the politicians will get their act together and actually save Social Security.  Say you’ll get the equivalent of $1,500 a month.  That drops your target down to $3,500 a month, or $42,000 per year.  You’ll need just $1,050,000 saved.

Now divide that by the number of years left until you plan to retire and you’ll have a rough idea of how much you should be adding to your nest egg each year, through savings and earnings on what you’ve already saved.

Lots of other factors complicate the calculation, including the fact that your money will still be earning income over that 25-year period, as you draw it down.  It’s not like you’re going to pull it all out of your investments the day you retire.   And then we have inflation and other unknowns.  But I’m just trying to give you the big picture.  Or the big wake-up call.

On the other hand, maybe you’re more ambitious and prefer to have a large enough nest egg that spins off $60,000 (or $42,000) per year.  Just to put that in perspective, if you’re clever enough to figure out how to get a steady 10-percent annual return on your money, you’ll need $6 million (or $4.2 million) set aside.  Tougher, no doubt, but at least you can leave the principal to your kids after they’ve taken such good care of you during those last years … when they’ll be facing retirement themselves.

Large asset management companies are concerned that today’s economic uncertainty and low returns on investments make it hard for a 35-year-old to accumulate those amounts before retirement.  And the longer you wait, the harder it is.

In fact, Larry Fink, Chairman and CEO of BlackRock, Inc. (the largest asset management firm in the U.S., handling $3.5 trillion in assets), said the other day that they’ve calculated an average 40% gap between needs and savings for Americans going forward into retirement, even including Social Security, 401k’s, defined contribution pension plans, etc.

And the problem is longevity.  More and more people invest time in how to live longer by exercising, taking vitamins and visiting doctors more frequently.  But they invest no time at all in how they’re going to afford that longevity.

You have a choice.

Either your retirement can turn into a curse and a burden on your children.

Or you can do the little rough calculation below, figure out what you need to save and then how you’re going to do it.  Somehow I hope to instill in you a gut-level instinct of the consequences of not being prepared.

  • Gross requirement (after tax) __________ per month
  • Subtract Social Security (projected)  __________ per month
  • Net requirement (after tax) __________ per month
  • Times 12 months __________ per year
  • Times 25 years ____________ total nest egg by ______ (year)
  • Years until retirement __________
  • Divide total nest egg by years until retirement _________ savings per year

Every decision from this day forward should run through the filter of whether it takes you closer to being prepared … or closer to more stress, uncertainty and potential misery.

I know, it sounds pretty harsh.  But the reality before you IS harsh.  There is no way to sugarcoat it.  It’s now up to you to turn that around so you can look forward to future years, where you’re financially free and enjoying (not burdening) your children and grandchildren.

Let me know in the comment section below what you’re doing today to prepare for retirement.

 

  • What I am doing? I am heading out the door…

    • SharonODay

      When you come back in tonight from slaying the proverbial dragon, Diane, grab a pencil and do the calculation on a scrap of paper.  Just knowing the number will start a (healthy) subconscious process in your mind …

  • I’m grateful for your consistent reminders and helpful coaching, Sharon! It helps to keep me on target when I start to stray, which is quite often 🙂  I remain debt-free, though, and I’ve reduced my monthly expenditures by 50%. I have been able to make it for the past 3 months without a traditional job but it feels like walking on water and I’m scared to really take a look at that. I do have income coming in from different places but no government assistance. Perhaps what best describes where I’m at is “toddler” – taking enthusiastic but sometimes not so certain steps toward financial independence. For me, it’s definitely included thinking outside the box and choosing to live in a way that I’ve never done before. It seems to be okay to toddle around for awhile – I hope to be well on the way to running in the next few years!

    • SharonODay

       No one follows the same path, Sue.  You are so keenly aware of your finances and are taking a much-needed detour.  What counts is that you know the implications of your decisions and you make them with eyes wide open.  I have no doubt that you’ll be back on track towards YOUR vision of retirement when you’re ready.  Let me know whenever the “toddler” wants to reach out … 😉

  • I always appreciate your straight forward information…whether a wake-up call or reminder, what you do is so vital to the quality of life we hope for. I hope and pray people will heed your sound advice…it is human nature to put off what is not in crisis mode, however, paying for the lifestyle we intend to live is NOT something easily remedied after the fact! Great article…I have printed your questionnaire to share with all those I care about! Thanks! 

    • SharonODay

      Denny, I’m not minimizing the “crisis mode” so many are in today, but I’m trying to point out that the “crisis mode” will be much worse at 80 if they don’t do absolutely everything they can to save whatever they can in the years they are earning income.

  • Lucy

    Hola Sharon: te contesto en español y con un dicho muy nuestro: ” mas claro no canta un gallo”. Gracias por presentar tan claro el panorama del retiro… para que tengamos la previsión y sabiduría para prepararnos…

    • SharonODay

      Gracias, Lucy.  Incluso en tiempos de crisis, no podemos dejar
      de poner algo a un lado.  Como sabemos,
      el impacto  del interés compuesto es muy
      fuerte y, sobre todo en el caso de los más jóvenes, un poquito hoy se convierte
      en una gran suma en 20-25 años.  ¡Qué placer verte por aquí!

  • Hi Sharon…I believe it was Tony Robbins who said; “In life, you need inspiration or desperation.” Unfortunately, at the present time, in general we are seeing more desperation than inspiration…Thank you for sharing your inspiration! Great information!…Hughie 🙂 

    • SharonODay

      Thanks for seeing it as inspiration instead of desperation, Hughie!  One reader said the topic was too scary for a Monday morning.  The intent was not to scare, but rather to simply imprint in the subconscious what the goal is so it “colors” decisions going forward …

  • Thank you for this cool article!

    • SharonODay

      Glad you enjoyed it, MarVeena!

  • Donovan Grant

    Thanks for sharing this article Sharon. I’m not near retirement just yet, but you sure made me think when you mentioned about people paying attention to staying fit and healthy  and not keeping a close enough health check on the finances for later stages in life. I’ll definitely be doing some financial exercises this week!! Thanks

    • SharonODay

      Donovan, the whole key is that we need to start looking into retirement long before we’re anywhere near it so what we save can grow through compound interest over the years.  (Granted, interest rates are pretty sad these days … but the discipline’s the important part.)  Most people don’t do the calculation of how many years their savings will have to carry them, since we’re living so much longer these days.  Glad it was helpful!  

  • The rough calculation for a survival budget is brilliant.

    • SharonODay

       Maggie, your government and mine are not going to be able to “catch” everyone who can’t be bothered to save over their lifetime …

  • Oh, totally scary!  Now what?  😉

    I know…we are doing everything we can to save and still get 5 kids off to college.  But so many people are not and I sure hope this is a wake-up call!
    Thank you for the information!

    • SharonODay

      Dorien, I think of all the needless (and frankly, forgotten) things I spent money on over the years … And even if some can’t get to “the number,” they need to realize that anything they DO save moves them up from Social Security survival status to something better.  And we’re living so darn much longer …

  • It is nearly impossible to get young people to think about retirement. 30 is the new 21 (or maybe even 18!) and with kids being able to stay on their parents’ insurance until age 31 in some cases, and the delay of marriage and childrearing, as well as the adult children who have had to move back in with their parents in this economy, a lot of people nowadays are well into their 40s or even older before they even START thinking about these things.

  • Interesting and informative post as always Sharon. Longevity is an issue for us all, no matter what age we are. Thinking about how we are going to provide for ourselves in the long term is as essential as taking care of ourselves now.

  • An eye-opener for sure!  So thankful that my husband had the foresight to suggest we sit down with a financial planner in the early days. (actually, they probably weren’t early enough!)  Everyone needs to read this article!

  • Many people will regret that they have trusted the government to take care of them, which will never work. We all have been given abilities to grow our own finances and take of ourselves and then even of our neighbors and so on. Thanks for being so straightforward Sharon; it is a wake-up call to many.

  • elaineshannon

    Time to do the math…can you suggest an online tool where we can input the information on what we already have saved to give us the real numbers based on what we have/vs what we need.   

    • SharonODay

      Elaine, my main purpose with this post was to wake people up to the task ahead of them.  But here’s a mid-range (in complexity) online tool I like … in order to fine-tune those numbers a bit … http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp

      Obviously, at some point going forward you’ll want to either become very well versed in the details yourself … or find a (preferably “fee-only”) financial advisor you trust.  Hope this helps!

  • Sharon, I am learning so much from you! Thanks 🙂 

  • Sharon, that does sound harsh but it is better to know, isn’t it? Thanks so much for the great info…you can’t get somewhere unless you know where you need to go and this is a great map!

  • Thank you for breaking this down so clearly! Wouldn’t it be great if middle school and high school math curriculums included this sort of calculation as part of teaching and lesson plans.

  • I really need to step up the savings plan here. thankfully, my son is doing much better than I am and already earmarking long-term savings toward a retirement plan.

  • Definitely a scary subject for many of us.  I know that our family’s retirement investment was wiped out with the housing crash.  We had invested in a ranch/BanB, had over 1/2 million in equity even at the trough of the housing market and still ended up giving the property back to the bank.  So taking a long look at where we need to go is tough.  But I appreciate the push!

  • carele

    My philosophy is not to put every eggs in the same basket so i don’t want to earn money just from a job or one business. It is to build one income and then start another one. Also, I do not spend for nothing, I look for the bargain and I still enjoy life and have fun when I feel like.  Thank you very much to write those great articles because they are so important for the population.

  • I really wish I had thought about it more. Yes plan early.. when you can.! Thanks Sharon!

  • Thanks Sharon, what good advice.  I wish I knew better when I was younger, but I didn’t!

  • we’ve been at it for some time now… 2001 hit us hard.. I’ll be working til I’m covered in flowers.. which is Okay.. I love my job!…

  • I loved this!  We are in our early 30’s and started our retirement savings while we were in our 20’s.  We recognize the need to start early!  Most people our age still think they can survive on Social Security!

  • It’s always good to know there is hope for the future.

  • Lisa Birnesser

    This is a great post, Sharon. It’s all too easy not to save and think about the future. I am writing down this calculation and plan to get serious about my future funds. Thanks!

  • Great article.  It would have been great to have had someone put something like this in front of us over 30 yrs ago, as we did not prepare well.  We somehow thought owning a nice house and townhouse would set us up!!!  
     But thankfully we are not relying on the government to look after us as now we have have found a terrific home residual income business based on shopping for gas and basics.  Everyone will always need to shop, so we will always have a business.  An entrepreneur that fills a need gets paid!

  • Thank you for sharing your great wisdom & knowledge, Sharon. You made a great point when you wrote, “More and more people invest time in how to live longer by exercising,
    taking vitamins and visiting doctors more frequently.  But they invest
    no time at all in how they’re going to afford that longevity.” That is so very true. I will be sharing this with my kids 😉

  • OMG! this is a post that every American must bookmark, read and re-read.  I will share it with my network, cause I know they’ll thank me (and you) for it!

  • Sharon, great post as usual! I totally agree with Susan that you made a great point when you wrote, “More and more people invest time in how to live longer by exercising, 

    taking vitamins and visiting doctors more frequently.  But they invest 
    no time at all in how they’re going to afford that longevity.” Great info – thanks for sharing!

  • I love how you detailed every step, every idea.  Makes it very clear & concise.  I’m visual so great help to me.  Thanks Sharon! 🙂

  • Excellent article Sharon!  This really puts things into perspective.  

  • Nice wake-up call Sharon!  Although it all seems like common sense, it also seems we never think about this.  So it’s good to get this out in front of people and at least get them thinking about it.  Even if they don’t hit their target, it’s better to have something saved than nothing.  Also, one never knows the future.  Just because the economy is poor and returns are low now, does not mean they always will be.  I remember in the early 80’s when interest rates went up as high as 20%.  I was a bank teller and student back then wishing I had lots of money to invest.  If one gets discouraged and thinks things will never get better, they may decide to skip saving anything.  However, then there will be nothing to invest should things pick up like that again.  So clearly your wake-up call is a great idea for so many reasons!

  • Thanks for setting things out so plainly Sharon. Retirement’s always been this vague idea off in the future, and your article and the formula make it much more real. Scary, but real. 🙂

  • Right on Sharon. This takes me back to the days of banking more than 30 years ago. Trying to educate people to take their future into their own hands and not rely on the system was like trying to convince someone the sky was falling. Numbers don’t lie. With the baby-boomer population either retiring or nearing retirement; it only makes sense that sheer numbers making withdrawals from the system that has fewer and fewer depositers (all of the unemployed of today) will bankrupt it before we know it. But then I guess many like keeping their heads stuck in the sand and choose to react rather than be proactive.