When this question was posed at lunch amongst financial industry work colleagues, years ago, I realized I hadn’t thought about my financial life goals in those terms. It helped me start thinking about how much I would need to accumulate in wealth to last through retirement years.
If you retire at age 65, with life expectancy at 90 years, use a round number, the math suggests you can spend about 4% of your retirement’s nest egg per year over 25 years and remain in a “safe zone.” To get back to MY number… what should I expect to spend yearly in
retirement? Having more time on my hands, I could enjoy travel and leisure. When I am less agile later, I might spend less on travel and leisure, but expenses could be replaced with healthcare costs.
Working in finance, I knew a variable like inflation could effect “back of
envelope math,” especially when calculating things over decades. Taxes and
asset allocation are also big swing factors. Then there is the question of “will the Social
Security income be available to me?” Taking an initial crack at coming up with MY number, I tallied up basic living expenses: housing, food, insurance, transportation and utilities, plus reasonable level of discretionary expenses: travel, membership dues, charitable giving,
entertainment, clothing, and - stop the presses - what if I have children someday? That would affect my spend vs. save rate for sure! GET the planning tools and knowledge to help navigate to get to YOUR number.
Here are 4 steps:
1. Create and stick to a budget
2. Max-out retirement savings
3. Invest and insure yourself wisely
4. Take setbacks in stride
These steps can support your retirement fund to a level where investments could outearn what you spend yearly, growing your passive investment income to perhaps one day replace your earned income. I am happy to share that my husband and I have two sons at Roswell High, and we feel in control of our destiny; well, financially speaking.
Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.
Morgan Stanley Smith Barney LLC. Member SIPC.
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Information contained in this article is not a solicitation to purchase or sell investments. Information presented is general in nature and not intended to provide individually tailored investment advice. Strategies and/or investments referenced may not be appropriate for all investors as the appropriateness of a particular investment or strategy will depend on individual circumstances and objectives.