Experts generally agree that we need at least 70% of our pre-retirement income to live comfortably during retirement. Of course, everyone has a definition of comfort, so 70% may not be enough – or, in some relatively rare cases, it may be more than enough. However, it is clear that any retirement savings plan must begin with us asking ourselves: “What do I want to do with the rest of my life?” This vision, this dream, should then fuel the process.
In each case, individually tailored savings plans will be important. Your Providence agent can help you design and appropriate plan. Nevertheless, we can offer some hypothetical scenarios of couples heading into retirement. Perhaps one of these scenarios replicates your dream.
The calculations presented assume that the couple has a pre-retirement income of $80,000, expects a pension of $28,000 annually and will spend all its retirement savings during their lifetimes (A couple wanting to do more by way of helping grandchildren and leaving a legacy will have to save more). The figures also assume a 6% rate of return on investments and a 3% inflation rate.
The Homebodies view retirement as a time when they can relax and enjoy each others company. They will work in the garden, do charitable works and read good books. The mortgage will be paid off and the kids will be out of college.
- How much is enough: 70% of their pre-retirement income, or $56,000 annually.
- Savings needed with pension: $432,000 for $28,000 annually
- Savings needed without pension: $864,000 for $56,000 annually
The Snowbirds, like the homebodies, view retirement as one long vacation. However, rather than stay at home, they spend their winters in the Sunbelt.
- How much is enough: 90% of income, or $72,000 annually.
- Savings needed with pension: $679,000 for $44,000 annually
- Savings needed without pension: $1.1 million for $72,000 annually
The Globetrotters see retirement as the beginning of a bold new chapter in their lives. They plan to travel the world – all of it: Argentina in Spring; The Alps in summer; Tuscan and the Riviera in Fall; and Bali in Winter. Oddly enough this hectic schedule requires earnings greater than those enjoyed in pre-retirement years.
- How much is enough: 110% of income, or $88,000 annually.
- Savings needed with pension: $926,000 for $60,000 annually
- Savings needed without pension: $1.36 million for $88,000 annually
The Part-Timers have enjoyed work: the thought of idle time seems depressing. They plan on working twenty hours per week, thereby giving themselves a sense of purpose and some additional income.
- How much is enough: 50% of income, or $40,000 annually.
- Savings needed with pension: $185,000 for $12,000 annually
- Savings needed without pension: $617,000 for $40,000 annually