Some assumptions we make can lead us to overestimate--by a large margin--how much we'll really need in retirement

1. Stop Panicking: Your
“Retirement Number” is
Lower than You Think
By PresenterMedia.com

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Don’t forget about taxes
If you hold your retirement savings in a 401(k) or
Traditional IRA, you’ll pay taxes on your
disbursements. So, let’s up that “retirement number”
to $1.1 million
What We Are Commonly Told About Retirement Planning
You will need to replace roughly 80% of your
current income
Let’s assume you’re 55, and make $50,000 (post-tax)
per year, so you’ll need $40,000 per year in
retirement
You will need to save about 25 times whatever
that number is, adjusted for inflation.
That comes out to $1 million, in today’s dollars.
Don’t count on Social Security to still be
around

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Assuming you retire at 65, and
adjusting your needs for inflation,
your retirement number is:
$1.5 million

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“But the average 55-year-old has less than $200,000
saved!”
Things aren’t as bad as they seem.
Many of these assumptions we are told
about retirement are simply wrong!
Here are six key points to remember

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Let’s Forget the 80% Rule
and Start From Scratch

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IT’S WHAT YOU SPEND, NOT EARN!
Point #1

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It’s what you spend, not what you earn
• Replacing 80% of your earnings doesn’t help figure
out what you need to continue the same lifestyle.
• What matters is what you spend.
• THAT is what constitutes your financial lifestyle
• Let’s say you dutifully put away 10% of your salary
every year.
• Now, you need about $45,000 per year (with a nice
safety margin)

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Your new retirement number, adjusted for inflation, is
now:
$1.7 million
*Remember, we ditched the 80% rule, that’s
why the number is higher…for now

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YOU’VE LIKELY PAID THE MORTGAGE OFF
Point #2

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You’ve paid the mortgage
off
• Mortgages typically
account for 70% of
housing costs
• The average home in
America spends $17,000
on housing.
• Because your mortgage is
paid off, that’s $12,000
you’re no longer paying.
• Your yearly needs just
dipped to $33,000

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Your new “retirement number,” adjusted for inflation, is:
$1.22 million

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NO MORE LIFE/DISABILITY INSURANCE
Point #3

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No more life or disability insurance
Think about it:
• Life insurance is to replace
your earnings if you pass away
• If you’re retired, you aren’t
earning anymore
• Disability insurance is to
replace your earnings if you
become disabled.
• Again, you aren’t earning
anymore

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Insurance (Cont’d)
However, one area that will likely increase is medical
spending—which includes out-of-pocket and insurance
premium payments.
• It’s highly unlikely that increased medical costs will
outweigh the benefits of no longer paying for life or
disability insurance.
• However, for argument’s sake and to build in a nice margin
of safety, let’s say it’s a wash.

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Your new “retirement number,” adjusted for inflation, remains:
$1.22 million

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SPENDING LESS ON FOOD
Point #4

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Spending less on food
• Several studies have found that
retirees spend less on food at home
after they retire.
• The reasoning is that they have
more time to prepare food on
their own, which is cheaper
than pre-prepared food.
• The average American family spends
$4,000 per year on food at home.
• Let’s assume a modest 10%
downtick in spending.
• You now need $32,600 per year in
retirement

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Your new “retirement number,” adjusted for inflation, is now:
$1.20 million

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YOU DRIVE LESS
Point #5

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You drive less
• Commuting is a major part of our
working lives.
• Though you’ll still use your car, it’ll
be far less than before.
• According to a recent study by
Frontier Group, retirees drive about
35% less, for a total of 8,200 miles
per year.
• If the average car gets 25 mpg and
the average cost for a gallon of gas
is $3.75, you’ll spend $650 less on
gas per year

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Your new “retirement number,” adjusted for inflation, is now:
$1.18 million

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SOCIAL SECURITY WON’T DISAPPEAR
Point #6

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Social Security won’t disappear
• Don’t get me wrong here, it
doesn’t hurt to be safe
without Social Security.
• But it’s very unlikely that the
program will disappear
altogether.
• To build in a margin of
safety, assume that your
benefits will be cut in half by
retirement time.
• That means you’ll get $8,800
per year from Social Security.

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Your new “retirement number,” adjusted for inflation, is now:
$855,000
That is roughly 57% of the amount we had at the beginning of the exercise

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What this does NOT mean
1. This does NOT mean saving for retirement is easy, or should be
taken lightly.
2. This does NOT mean you should put off savings and spend your
money on other things—the Hedonic treadmill is a tough one to
get off.
3. This does NOT mean your own situation will mimic this
example. Take all of these factors into consideration, but
understand that its up to YOU to figure out what kind of
lifestyle you want in retirement, and how to best reach that
goal.

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Here’s Your First Step Towards Retirement Goals
We have prepared a special free report to help you reach your goal. Click to read:
Take Advantage of This Little-
Known IRS Rule