Pop culture finance frequently publishes articles on the amount of money that you need at retirement. I find them to be interesting because they don't even begin to prepare the reader for what lies ahead.
These articles typically land on $1,000,000 as the amount of money that you need for retirement. The even more interesting aspect of these articles is that you don't have any idea where they came up with the $1,000,000 number.
Then, they came up with a few pieces of advice. I thought I would highlight a couple of them. This one planner says:
What most people should strive for is the “mentality of feeling assured that you can spend money throughout retirement,” one expert said.
There are two ways to obtain that mentality of feeling assured that you can spend more money throughout retirement. The two ways are at the extreme of the spectrum. On one side you have that assurance because you have a very well put together simple financial plan that identifies how much you have to save, your income replacement goal at a certain age, your inflation rate, and the investment growth that you are attempting to create.
Then on the other side of the spectrum, you don't go through the process of knowing real numbers and you guess which you think you will need hoping that you are right. Maybe $1,000,000 makes you feel secure. The danger of this fixation of the need being $1,000,000 is that 15 to 20 years from now $1,000,000 won't be what $1,000,000 is today. The worst part of this type of assumptive thinking is getting locked into the notion that everything will work out when you really have no idea if it will. People can stay lost in that reality for longer than their money will last.
Then there was one suggestion by a planner to take one month of expenses and multiply it times 12 and that will give you your 12-month spending rate. Of course, that only works when we don't consider things like birthdays, Christmas shopping, back-to-school shopping, and all those things that just don’t happen every month. Depending on which month you choose could cause you to underestimate what you need.
Successful retirement planning requires that we get into the detail of life and figure out what our own numbers for retirement look like. The good news is that it is not a tough process to go through. If you want more information on the process or anything related to retirement planning, feel free to e-mail us at info@prudentmoney.com.
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