ING Direct’s recent survey (now Capital One 360) results about retirement are scary. I don’t know what the world is going to be like in thirty years, the time I’ll be approaching “retirement age.” I do know that if my pattern of increasing expenses doesn’t change until then, and if I’m still earning primary income by trading my time and effort, a comfortable retirement is going to require a lot of saved and invested money.
If you believe the 4% safe withdrawal estimate, in order to live off the equivalent of today’s $50,000 a year, I’m going to need the equivalent of today’s $1,250,000 invested. Assume a modest 3% rate of inflation and I’ll need more than $3,000,000 in 2040 dollars. Unless I make major reductive changes to my lifestyle or move somewhere in the world where the cost of living is low, I’d prefer to live on more than today’s $50,000 a year. I’m going to need a bigger nest egg.
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Although it sounds sophisticated, this is speculation based on assumptions that could be very wrong. I’m doing exactly what 53% of working Americans are doing according to the ING Direct survey: guessing the amount of money I’ll need to save for retirement. Even if I were to use an online retirement calculator sponsored or designed by banks, investment companies, or bloggers, my results would still be guesses, though most likely slightly more accurate.
Capital One 360 is offering a planning tool that takes into account the lifestyle you’d like in retirement, your investment style, and your assets and planned contributions, and presents a savings plan. According to my results, I am surprisingly on target for over $3,000,000 in 2040. This includes a number of significant assumptions about my future income and rate of return on stocks.
According to the ING Direct survey, one third of Americans age 55 and over think their number is $250,000 or less. There is a subtle implication that this won’t be enough for many retirees.
In reality, I don’t know what my retirement will look like in 30 years. I may never be able to stop working in order to afford expenses for my future family. The best we can do is set a target that makes sense for what we know and understand of the world today, and make choices based on the assumption that the nature of money and finance won’t change too much between now and then.
What is your retirement number?
Updated September 26, 2016 and originally published March 11, 2010.