How Long is Your Runway?
January 27, 2021
The amount of money you need to retire depends on the cost of your lifestyle, the expense of aging, and how long will you live.
How much money will I need to retire?
This is the most frequently asked question in many financial planning conversations. The answer depends on two factors.
How long will you live and how much do you spend every year?
Life expectancy is unknown, however, for planning purposes you can make certain assumptions. People at the age of 40, 60, or 80 will have different expectations.
The older you are, the less years you have to finance. An 80-year-old might plan for the next decade. A 60-year-old could plan for the next three decades.
Spending money during retirement consists of entitlements you will receive, including pensions and government benefits. Any shortfall of funds from these sources must be supplemented from your own savings.
That is the real question. What is the amount of money that you have to provide every year?
The final consideration is your anticipated level of spending. That depends on your lifestyle and will likely fluctuate.
Early retirement can be expensive because you are a more active retiree and potentially doing more things including expensive travel. The middle part of retirement generally is less active and consequently less expensive.
During retirement health related costs will likely increase steadily and in the final stage of retirement costs can be staggering. This is particularly true if you move to a retirement home and or need additional care living at home.
Retirement can be broken down into a simple mathematical formula. The number of years you anticipate you will live multiplied by the annual living cost equals the amount of money needed to retire.
The largest unknown for most is estimating how long a life you will live.
When will you leave planet earth?
How long is your runway?
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com