How Much Do You Need to Retire?
It's a Moving Target

Last night marked the second segment in the Nightly Business Report Series, "Getting Your Finances Ready for Retirement." As promised, I am monitoring this series for you, and I was particularly interested in tonight's topic, "How Much Do You Need to Retire?"

This, of course, is the question on everyone's mind as they look ahead toward retirement. It is even the topic of one of our Platinum recommended books, The Number: A Completely Different Way to Think About the Rest of Your Life, by Lee Eisenberg. I'm pretty much of a skeptic when it comes to the obsession many people have toward their number. Why? Because it is such a moving target.

In tonight's show, Jonathan Pond, prominent financial planner and author of "You Can Do it," opined that in calculating your number, you should be able to maintain your lifestyle on about 65% of your work income. Following this, another financial planner, Patricia Houlihan, insisted that you really need 100% of your work income. Who's right? Well, probably both of them, which is part of the problem.

In my book-in-process, Platinum Living, I have a chapter tentatively titled "Number, Schmumber," which is my irreverent way of pointing out the dangers of "number obsession." But of course, knowledge is power, and the more you anticipate, the better prepared you are.

The reason that two perfectly capable financial planners can disagree so significantly over how much you need is that their client's wants and needs vary just as greatly. I have no doubt that a person who is motivated to hold down spending in retirement can do so, and live within Jonathan Pond's 65% threshold. But often, Patricia Houlihan's client's decide that, yes, the want to sell their home and downsize to a condo, but wouldn't it be nice if that condo had an ocean view, and before you know it, they are spending just as much for the condo as they get for the house.

We have all experienced in our lifetimes how wants can easily become needs. I even blogged on this a few months back. And I believe that it's this want/need tradeoff that accounts for the large variances in income needs.

But there are other variances, too. How much will your investments earn in retirement? I'm a big advocate of investing more aggressively than our parents did into our 60s and even 70s in light of our much longer life expectancies. I've blogged on this as well.

And finally, there is the hugely significant fact that 80+% of us plan to work well into our "retirement years," giving us the opportunity to alter our numbers as we go along.

And that is the essence of my "Number, Schmumber" argument. But if you must calculate a number, Monday's NBR show has an excellent companion article loaded with information, and a link to a great resource for making your number calculation, www.choosetosave.org. The "Chooose to Save" website has an excellent calculator on it.

Oh, and there's one last reason you need to be careful of number calculations. The most common response of those who actually reach their numbers, according to Eisenberg, IS TO RAISE THEM... as in "I got my $5 million, but now I find I need $10 million." Yet another example of wants becoming needs. That is not a game I want to play. - Bob

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