Your magic retirement number is 80. If you don’t have 80% of your pre-retirement income in savings and retirement investments – – – – – don’t retire!!
Unless you plan on working throughout your retirement years, you will run out of money if you start your retirement with anything less than 80% of your pre-retirement income saved up. Your 80% of savings and investments will need to carry you through your entire retirement years. This 80% you should include any social security benefits you may receive plus all your retirement accounts (401k accounts, IRA accounts, Simple IRA accounts, pensions) If you go into full retirement with no part-time work, and investments that equal less than 80% you will be in for a lot of surprises.
Why 80% is your magic retirement number:
Full Retirement is a long time: you will need 80% of your pre-retirement income.
- Most people retire in their mid 60’s; on average, males live to about age 83; females to about age 92.
- On average, most of us will be in our retirement years for almost 20 – 30 years.
- Your retirement years will almost be as long as your working years.
- Unless you plan on working during your retirement years, you will need to have enough money saved up to carry you through your full retirement of 20 – 30 years.
You will be older: you will cost more – you will need your magic retirement number
- Higher health care costs.
- Increased health insurance costs – insurance companies will charge more because you will be older.
- You will not get health insurance through work – you may have to pick up some of the premiums.
More available time in retirement: you will spend more
- The luxury of having more available time will cost more.
- At retirement you will have a new life style.
- Increased visits to your family and friends, increased travel or spending more time on your hobbies.
- Additional activities mean additional costs.
Don’t be fooled, everyone assumes that when they retire, their expenses will decrease – they don’t. The only expense that will decrease may be your work clothes and transportation costs. In retirement most people see an increase in their expenses; and the savings on work related costs that did decrease is not enough to offset that increase.
Market fluctuations: the market swings do not stop at your retirement.
- Drops in the market can impact your retirement nest egg.
- When you are no longer contributing, market fluctuations can cause your portfolio to dip so low that you may not rebound quick enough
- Market costs still exist when you retire.
- Investing and trading fees still exist.
When you retire, although you may wish it to be so, the market does not stop its upward and downward swings. If you have 80% of your pre-retirement income saved up, your portfolio swings should not affect your lifestyle.
Withdrawals: things will change when you retire, but your need for money will not.
- The money you need to live on will lower your account balances; more will be going out of your account than coming into it.
- Your contributions stop when you retire.
- Your distributions start when you retire.
- Tax deferred benefits stop.
You should now have a better understanding of your magic retirement number. You should now know why you will need to have at least 80% of your pre-retirement income accumulated before you even think about retiring? You will need a lot of money at retirement; make sure you have plenty of it before you retire. Do not retire if you are in debt. You will just be working during your retirement to pay off that debt. If you can hold off until you are debt free, your retirement years will be a lot less stressful.