How much do you think you will need for retirement?
It’s a question that has answers that probably vary from person to person. Sure, we each probably have a set of true needs that are somewhat consistent. However, we also each have will have our own medical and family situations which will impact how much we need for retirement. Plus, let’s face it: some of us will have different wants than others.
What all boils down to is that we need to work on saving for retirement and getting ourselves in a position to have a comfortable existence later in life, at a minimum. Along those lines, it’s often been said that we should be able to have a nest egg saved that will allow us to have a 4% withdrawal rate in retirement.
The idea behind this widely used 4% withdrawal rate in retirement is that if we withdraw 4% of our accumulated savings, and adjust that for inflation annually, we should be able to have enough for retirement needs over a 30-year time period.
For example, let’s say that somebody has $500,000 in savings. If they withdraw 4% annually – or $20,000 – they will be able to survive for 30 years on that money.
I brought that figure up because I recall a conversation with a co-worker who was talking about lottery winnings, or rather what one could do in the event of winning a lottery. When the figure $500,000 came up, he remarked that a person might be able to retire on such an amount. I disagreed, and he looked at me sideways as if I was crazy.
Well, when you think about it, if you want to keep a 30 year time frame, I think that there are three things that come to mind:
1) We will need a lot more savings than we might realize. Think about it – $20,000 a year for retirement? That’s not going to fly for most people, especially those in high cost of living areas. Even if you layer in social security, I don’t see that working too well.
2) 4% might be too aggressive. Would it be more conservative, and safer, to assume a lower withdrawal rate? Like perhaps 3%? Given the variability in markets and investment returns, it seems like it could be better to be safe than sorry.
3) We may have to work longer than we want to. Ah, but here’s the catch: we often can’t work when much older. How easy is it for somebody older to get a well-paying job? How easy is it for somebody older to be healthy enough physically and mentally to meet the demands of a job as well as a much younger, energetic counterpart? These are all factors going against planning on working when older, but unfortunately some folks may have to do so. Just try not to count on it though!
My Questions for You
Have you given thought to how much you’ll need for retirement?
What do you think about the 4% withdrawal rate concept? Do you think that percentage is right, or should it be different?
What are your thoughts on the ideas that we may need more than we think, and that we might not be able to work as long as we would want to?