David Lerner Associates: Know Your “Retirement Number”

This can be expressed in two different ways:

1) The total amount of money you need to have saved in your retirement account(s) on the day when you stop working.

2) The amount of money you will need on a monthly basis to meet your everyday living expenses.

Traditional Assumptions

Traditionally, some experts have recommended individuals plan on needing somewhere between 70-80 percent of their monthly pre-retirement income to meet their living expenses during retirement. This is based on the assumption that you will no longer need to support children, you may have paid off your home mortgage, and you won’t have employment expenses like clothing, commuting, eating lunch out, etc.

But these “savings” can easily be offset by unknown variables, says Martin Walcoe, Executive Vice President, Sales Development, for David Lerner Associates. “These unknowns might include things like the future cost of healthcare, your health status after retirement, the future rate of inflation, and additional unplanned expenses you haven’t thought of, especially if you plan to live an active retirement lifestyle.”

The bottom line, says Walcoe, is that everyone’s retirement number will be different. “You can’t just choose an arbitrary percentage quoted by some expert and think that’s the number that’s going to be right for you and your spouse. You need to take a close look at your pre-retirement expenses and what your personal situation may be like when you retire.

“For example, will your mortgage be paid off? Does your job offer retiree health benefits that will help reduce the cost of healthcare in retirement? How much will you receive in Social Security benefits? And do you plan to pursue expensive hobbies and travel when you retire? All of these factors will have a big effect on your personal retirement number.”

A retirement calculator can help you  figure out your Reitrement Number

Some Potential Good News

Research conducted by the head of retirement research for Morningstar Investment Management David Blanchett presents some potential good news for retirees and future retirees. When Blanchett modeled actual spending patterns over a couple’s life expectancy rather than over a fixed 30-year period, he determined that many retirees may need less than the 70-80 percent of monthly pre-retirement income that has traditionally been recommended — up to 20 percent less.

For some retirees, the actually replacement rate could be almost as low as 50 percent, according to Blanchett. He attributes this to the fact that many individuals’ consumption rates start to decline once they enter retirement. And along with employment and child raising expenses, other expenses like Medicare and Social Security taxes may also disappear in retirement.

Another big factor is the amount of taxes and the tax rate that a couple will pay in retirement. If a large percentage of your retirement savings is in a Roth IRA or 401(k), for example, you may pay less money in taxes than if it is in a tax-deferred account like a traditional IRA or 401(k). And if you decide to move from a high-income-tax state to a low- or no-income-tax state after you retire, this will also affect your retirement number.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC

Source: https://newswire.net/newsroom/pr/00085705-david-lerner-associates-retirement-number-syosset-ny.html