By the Numbers: 11 Figures You Need to Know for a Secure Retirement
Figuring out if you can retire securely can sometimes feel like the most complicated word problem ever. Just figuring out which retirement number to worry about can be perplexing. And then there is the further complication of knowing how they all fit together.
Here is your guide to the 11 retirement numbers that are most important.
Retirement Number 1: Your Break Even Social Security Age
You probably know that the later you start Social Security, the higher your monthly benefit will be. Even so, a lot of people start getting checks as early as possible. They think that the additional years of collecting benefits will make up for the additional money later on.
However, most people will earn more during their lifetime if they wait to start the benefits until later.
One way for you to figure out the best time for you to start Social Security is to figure out your break-even Social Security age. To do so you compare the total benefit you would receive at one age to another age. Your age when the total benefit is equal is your break even age. If you think that you will live longer than your break even age, then you would be better off delaying the start of your benefits till later.
You can figure out your break even Social Security age with this calculator.
Retirement Number 2: How Long You Will Live
Another important retirement number is knowing how long you will live. As you saw above, knowing your longevity will impact your decisions about Social Security, it also is a big determining factor on how much savings you need for retirement.
Of course no one can really predict how long they will live. However, there are some good longevity calculators that can help you make a relatively good prediction — you may just want to add 5 or 10 years to any estimate just in case!
Retirement Number 3: How Much Monthly Guaranteed Lifetime Income You Have
Guaranteed lifetime income — money that you will receive every month (no matter what) for the rest of your life (no matter how long you live) — is the real secret of financial security.
In fact, retirees who report having guaranteed income that exceeds their spending report less stress and an overall happier retirement.
Common sources of guaranteed lifetime income include: Social Security, some pensions and lifetime annuities — add them all up to get this important retirement number.
Many retirees who have adequate savings buy a lifetime annuity to insure their retirement income. You can estimate how much income your savings could buy or how much desired income would cost with an annuity calculator.
Retirement Number 4: Inflation Outlook
Inflation is an economic concept that describes the increase in prices. If inflation is rising at 3% annually, then something that costs $100 today will cost $103 a year from now, $106.09 in two years and it keeps accumulating.
Inflation can be less noticeable when you are working because your salary generally keeps pace with the increases in costs. However, inflation in retirement – when you are living off a fixed set of assets – is a whole other matter. You have a fixed amount of money that can buy less every year.
Here are some serious quotes that describe the dangers of inflation:
- “Inflation is when you pay fifteen dollars for a ten-dollar haircut you used to get for five dollars when you had hair.” -Sam Ewing
- “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” -Ronald Reagan
- “Inflation is the crabgrass in your savings.” -Robert Orben
Predicting inflation is an important component of preparing for retirement. According to this chart, inflation in the United States was at 2.07% in 2016. This is much lower than the highest rate of 13.29% in 1979 that we have seen over the last 50 years. However, experts predict that we are likely to see inflation increase in the near future.
The NewRetirement retirement planning calculator enables you to make your own predictions about inflation and easily change them to see the impact on your finances now and well into your future. You can even put one number for general inflation, another for housing inflation and yet another for medical costs which have been rising much faster than other services. This can greatly increase the accuracy of your retirement plans.
Retirement Number 5: Rate of Return on Investments
If you have retirement savings, then knowing how much that money will earn for you is important.
Ideally you are earning a rate of return that is better than average. What is average you ask? The answer, of course, is that “it depends.”
According to DALBAR, an independent expert for evaluating financial services, average returns over the last few years look like this:
- For the last 3 years, the average return for the S&P 500 has been 20.41% while the average return for mutual fund investors has been 14.82%.
- Over the last 10 years, the average return for the S&P 500 has been 7.67% and 5.26% for the mutual fund investor.
- Over the last 30 years, the average return for the S&P 500 has been 11.06% and a mere 3.79% for the mutual fund investor.
As you can see, the rate of return varies greatly depending on the time period you are looking at as well as the type of investment. And, this is just a simple comparison of two investment options. However, depending on how much retirement savings you have, predicting a rate of return can be critical to your financial security.
The NewRetirement retirement planning calculator lets you enter a rate of return for each individual account — you can even put in an optimistic and a pessimistic prediction — and it is easy to change and immediately see the impact any change would have on your financial well being.
Retirement Number 6: Out of Pocket Healthcare Costs
This number is easy — if you want to go with averages and the opinions of various experts in the field.
According to Fidelity’s Retiree Health Care Cost Estimate, a 65-year-old couple retiring in 2016 will need an estimated $260,000 to cover health care costs in retirement. This is a six percent increase over last year’s estimate of $245,000 and the highest estimate since calculations began in 2002.
And, this does not include any money that may need to be spent on a long term care need.
The NewRetirement retirement planner automatically includes out of pocket medical costs in your plan and can help you figure out how to cover long term care.
Retirement Number 7: Estimated Monthly Retirement Spending
Knowing how much you will spend is another critically important retirement number. The more you will spend, the more savings and income you will need.
There are various ways to predict your spending. Different experts have different suggestions for figuring out your spending, some say that you will spend:
- 85% of what you do while working.
- The same as you spent while working.
- More when you first retire, then less as you grow older.
- Much less in retirement, because you dramatically cut costs to make ends meet.
Retirement Number 8: How Much is Your Home Worth
Many 50, 60 and 70 year olds today have put more effort into buying a home and paying their mortgage than they did on saving for retirement. As such, your home is an important source of retirement wealth.
More and more retirees are downsizing or getting a reverse mortgage as a way to use their hard earned home equity to fund retirement. You can use the NewRetirement planner to see the impact of tapping into your home’s value.
Retirement Number 9: How Much You Have Saved
This should be easy. How much do you have saved for retirement?
The trickier part is knowing how much those savings will be valued in the future. When will you make withdrawals and for how much? What kind of rate of return will you get? Will you add anything to your savings?
Retirement Number 10: Your Retirement Age
Retirement age used to be 65 for most everyone. These days we aren’t even sure exactly what “retirement” means anymore. So many more people are quitting their job only to get another career or part time gig. Other people are phasing out by going part time for a while. And, retirees are more active now than ever before.
You might be able to define your retirement age as when you stop earning income from work. But, then we get into the definition of work… Many people these days have side hustles and passive income sources.
So maybe the new idea of a retirement age is the age at which you need to start really relying on withdrawals from savings to make ends meet.
Retirement Number 11: How Much Savings You Need for Retirement
This is THE retirement number — the question that everyone wants answered.
Of course, the answer to this question depends entirely on your answers to all the other questions…. And, the best way to get a reliable answer from this jumble is to use a good retirement calculator — one that is detailed and that can be completely personalized.
Numerous sources rank NewRetirement’s tool as one of the best.