TEMPLE, Texas — Many Americans have had a really hard time with inflation. We just can't seem to get ahead! And when you retire someday, the cost of everything will be even more!
So, when it comes to retirement income and your ‘Nest Egg,’ what do you really need? People are living longer and longer, and you may have to face the reality of actually outliving your money someday.
Certified Financial Planner Neil Vannoy has some advice in this Money Talks.
"The biggest risk by far is underestimating the cost of a secure retirement," Vannoy told 6 News. "Many people don't give a lot of thought to how much they should be saving in their retirement accounts on an annual basis, and even fewer take the time to estimate the total balance they should aim for by the time they retire."
Like anything in life, Vannoy says you need to start with a plan.
"You should start by estimating how much you might need to spend per year in retirement," Vannoy said. "A simple way to do this is to start by figuring out how much you spend to support your current lifestyle. Once you get this figure, subtract expenses you won't have when retired (like retirement savings and expenses for your children) and then add expenses you might incur (like money for additional travel or increased health care costs). That should give you a rough idea of the amount you might need to spend in retirement in today's dollars."
The amount of money you need can actually be all worked out mathematically!
"Withdrawals from your nest egg will be needed to cover any shortfall between your retirement spending and any steady income you'll have from things like social security, pensions, income from a rental property or part-time work," Vannoy said. "For example, assume you'll need $50,000 in retirement income and will receive $18,000 per year from social security. This leaves a gap of $32,000 per year. $60,000 income need – $25,000 social security = $35,000 income gap. To get a rough idea of how large your nest egg needs to be, simply multiply this gap by 25. In this case, you'd need around $800,000 to produce the extra income you need, assuming you withdraw 4% per year. $35,000 income gap x 25 = $875,000. If you're more conservative, like I am, you might want to aim for around 30 times your estimated income gap in order to spend closer to 3.3% of your portfolio value per year instead of 4%. $35,000 income gap x 30 = $1,050,000"
Remember, whatever you are living on today will flat out be more expensive in the future, it's just a fact of life!
"The cost of everything we buy increases over time, so keep in mind that the numbers you come up with will need to be increased by 3% each year to keep up with inflation," Vannoy told 6 News. "When investing for retirement, you should increase your savings by the inflation rate or higher each year and make sure you invest in assets that are likely to outpace inflation over time."
Remember, the number of retired workers receiving social security benefits increased from approximately 34.59 million in 2010 to 50.15 million in 2023. This figure has increased at the same rate year-on-year over the past decade and is likely to continue well into the future.
More Money Talks from 6 News: