If you’ve been reading about retirement number estimation, you probably have heard that the experts recommend you estimate your retirement spending at around 70-90% of your current salary. The problem with using 70-90% is that:
- That’s a huge range.
- Rules of thumb work for the masses, tailor it to your own situation.
- Since when was life as easy as that?
So, while you can start with the 70-90%, picking the lower end if you want to be riskier and the higher end if you want to be conservative, here are a few tips to help you adjust it higher or lower based on these factors.
Remember expenses that will go away. Hopefully in retirement you won’t have to be paying off a mortgage or at least you’ll be very close. Consider that and other expenses that may be sunsetting while you are in retirement and be sure to take that into account when you make your retirement calculations.
Think about what you might cut out You may enjoy horseback riding as a hobby and it’s one of your expenses right now, do you foresee yourself continuing that hobby into retirement? You may love the internet now but you might want to cancel cable in your retirement so you can disconnect? Consider these as ways to lower your needs.
Medical expenses. If you’re in relatively good health and have good health insurance, you may not need to adjust the 70-90% rule. If you are a smoker, you have a family history of health disease or cancer or any of other chronic conditions, or are in moderate to poorer health, add some padding to your retirement number to cover those contingencies.
Longevity. A scary problem to have is for you to out live your money. If you’re in good health and come from a family with long lifespans, add some more funds to the rule so that you can cover the good situation of living longer.
Ultimately you need to think of all these factors that may require you to have more funds than you original anticipated. Rules of thumb are a good start but they’re not the final answer.