Are You Stressing Too Much?
Or Not Enough?
How much do you really, really, really need for retirement? Based upon decades of experience in elder law and talking to hundreds of people (and looking at their finances) my opinion: Not as much as other experts might say.
I want to know what you think. You may comment at the end of this article.
Yesterday I saw a piece on CNBC in which a somewhat incredulous young reporter was interviewing a seasoned financial advisor who claimed “$2.5 million is a good start.” I posted it on the Mason Law, PC Facebook page if you want to look at it. In fact, the article and video link to a number of other interesting pieces. I spent about 30 minutes looking around on the site.
We all have seen retirement calculators on the web. When I Googled “Retirement Calculator” I got 31,400,000 results (in 0.23 seconds, no less). Most of them are hosted by financial institutions, and most of them grossly inflate the real needs of retirees (or so I believe).
Why do I think that? Based upon my experience and the vast majority of my clients, a million dollars is at the high end. In fact, a typical client will have a residence (paid for), maybe a small tract of land (inherited) and a few hundred thousand in the bank. No debt. Social Security of perhaps $1,600.
While they may be living “carefully” they certainly aren’t living in grinding poverty. Other than the normal concerns of age, many of them, I daresay, are happy.
I suspect that the inflated needs are based on a number of assumptions. First, that the “target” audience of the retirement calculator or ad may be relatively high earners in the first place.
Second, that the target will maintain the same life style after retirement (which isn’t necessarily so)
Third, that the level of expenses, including debt, will remain the same pre and post retirement. Most folks tend to pay off debt as retirement approaches (including having the residence close to, or completely, paid off).
Fourth, that the retirement calculators often build in $250,000 or $500,000 for health care expenses. Between Medicare Parts A, B and D (or alternatively an Advantage Plan under Part C) and a Medicare Supplement most medical expenses are covered. With a bit of planning long term care expenses can be largely addressed through either insurance or (hehehehe) a trip to see me (or a combination of both).
The Warren Buffet Secret Wealth Building Formula
Of course, if you had a bit more extravagant retirement in mind, here is the Warren Buffet secret trick to retiring as a millionaire in just one year: Save $84,000 a month for the next 12 months.
On the Other Hand . . .
I am not recommending ignoring the problem, as many seem to be doing. You have to start planning. You MUST avoid what I have sadly seen in my conference room. The couple is in their 80’s, have a home worth $120,000 with a mortgage and a home equity line totaling $100,000. Credit card indebtedness of $30,000. Total income of $2,300 a month. Total expenses (including debt service) of $2,500.
In many cases, however, I cannot help but think that many people are subjecting themselves to excess stress by trying to meet recommended (but unrealistic) guidelines and expectations found on the internet and other media.
Think about it . . . but perhaps you can dial back the stress level a bit.
I really want to know what you think. Your comments are welcome.