We’ve all seen them. Those pesky little articles and calculators showing you how to calculate the amount you’ll need at retirement to manage x dollars a year. I kind of view these calculators and articles like I do a winter weather forecast here in Chicago. I look at all the forecasts from the local news outlets, and then pick the one I like most. That seems to work! Well, it may not work with retirement, calculating the money that you think may work – but it feels like it should with how overwhelming it is to review “estimates”.
Seriously though, Nicole and I have spent quite a bit of time reviewing, reading, estimating, running all those calculators just to make sure our comfort level with savings will be enough. I am hopeful in having enough by the time we retire so we can manage. But ideally, anyone would want more there so they can do the things they think about that comes with retirement. I’m not here to take on the task of walking you through how to set up your financial future, but rather discuss an article I came across.
So this morning I was reading an article on USA Today about Millennials’ new retirement number. BTW, for Millenials that new number is $1.8MM dollars compared to the $1.6MM for Gen Xers (yours truly) and $1.3MM for the baby boomers. The $1.8MM is assuming you are looking to generate $40k/year in income. That $1.8MM goes up if you’re looking for more each year. They attribute much of the change in cost of inflation (COI). In the example they highlighted a $1MM nestegg today would only be worth some $500k in 32 years with a 2% rate of inflation. Yikes! Is 2% realistic? This year 1% is the forecast amount. And over the last couple of years it has averaged less than 1% a year. Of course, over time this number has been all across the books. The Federal Reserve targets 2% inflation to help balance the right level of inflation vs a healthy economy (flashback to Econ 101, Consumer Price Index ring a bell?).
Anyway, back from that tangent. The COI is only one factor to consider. What about housing expenses, healthcare, long term healthcare insurance, monthly expenses, do you want to travel more, are you good with keeping a more frugal lifestyle? There are so many factors it makes your head spin. What I did like about the article is a mention on how important it is to start saving as early as possible in life.
I really like the examples like “Susan” below. She invests $5k/year for the 10 years between age 25-35 and nothing else. Yet, at retirement, that has grown to over $560k. It’s not exactly compound interest, I’d call it compound investments. But it is the same lesson, time can be on your side if you start early.
For me, my comfort level with savings is somewhere between a good retirement calculator and my gut feeling. I do feel the calculators that take as many variables into consideration as possible will tend to be the ones most accurate. I actually think the $1.6MM is pretty close. I’d like for it to be higher so I can ensure retirement will be a little more fun. My biggest concern with retirement expenses is healthcare. That’s a
rant umm, post for another time. In the end the biggest lesson for saving for retirement is that it’s never too early or too late to start.