Saving for retirement: when enough is enough
How much money for instance will it take you before you can live comfortably? How much money will it take to make sure your children get the sort of education they need to be successful? How much money will it take to retire? What I suspect is that finding those answers is a bit like a carnival duck shoot. The ducks keep moving. The gun doesn’t shoot straight. You forgot your glasses and you’re too far away to see the ducks well enough to get a good shot at them. And finally, some annoying person keeps yelling in your ear so that you can’t concentrate. You get the picture. Your chances of hitting the target are fairly slim.
Conventional wisdom is that you’ll need to have saved 11 times your last annual salary for retirement. Simple math puts that at a little over half a million dollars if you made $50,000 in your last year of work. But we all know that number is a moving target. For instance, Fidelity Benefits Consulting calculated that the average 65-year old couple retiring this year would need $220,000 to cover medical expenses throughout retirement. Those costs do not include any costs associated with nursing home care and applies only to retirees with traditional Medicare insurance coverage. The good news is that that number is down $20,000 from last year. The bad news is that hey it’s still $220,000.
Americans used to think that the magic number was $1 million. That’s the number that told you when you were rich. That’s the number at which you could quit your job and retire comfortably. And compared to most retirement nest eggs, $1 million is a considerable amount of money. But according to this New York Times article, even people who have saved $1 million probably haven’t saved enough.
One common financial rule of thumb for retirement is that if you withdraw 4 percent of your saving per year you’d have enough over the period of your lifetime to die without going broke but under current conditions if you invested in bonds (as a safer alternative to stocks) you’d have a 72 percent probability of running out of money before your death.
And those are situations where nothing untoward occurs. Rajiv Nagaich, a Seattle-area elder law attorney remembers his most egregious case occurred early on in his practice. A veteran had fallen down and had serious medical issues that required him to be rushed to the hospital. He spent nine months in the ICU while the doctors struggled to find out what was wrong with him. He and his wife had significant acreage on the Kitsap Peninsula and had planned to build a Bed and Breakfast with an adventure theme. By the time Nagaich had been called in, the couple had spent $3 million and had almost no liquid assets left.
When you read stories like that, you might be tempted to throw up your hands in defeat but the point here isn’t to tell you that no matter what you save your retirement fund will be a lost cause. The point is that successful retirement takes serious work. If you can educate yourself on how Medicaid, Medicare, and VA benefits work, if you can take advantage of techniques to maximize your Social Security benefits, if you can prepare for your retirement by making sure you’ve made solid and educated choices in the areas of your life that incorporate housing, legal, financial and health decisions, you’ll be in a much better position to deal with whatever curve ball life throws your way.