How Much Will You Need In Retirement?
We field questions constantly from clients and others who are concerned with how long they may live in relation to the amount of assets they should have in retirement for medical, daily living, and lifestyle needs. This type of risk is called longevity risk.
My favorite example of this came from one of my grandfathers. “What is the definition of eternity?” he would ask jokingly. He would then answer his own question by stating “from the day my money runs out to the day I die.” Obviously, no one wants or wishes for this type of “eternity.” However, it happens far more often than most people realize.
For example, to give people an idea of how much money they might need in retirement we like to use a simple formula that illustrates just the cost of eating and food. One economist predicted that the cost of a McDonald’s Happy Meal would be $7.50 in about 10-15 years.
So, let’s say that in retirement you and your spouse or significant other ate 3 Happy Meals a day every day for 20 years. If you retired at age 65 this would take you both to about your probably life expectancy – although it might be considerably shorter if all you ate were Happy Meals but let’s just say you did for 20 years.
The formula looks like this: 2 people * $7.50 * 3 meals per day * 365 days per year * 20 years = $328,500. That is a considerable amount just to eat cheap meals in retirement!
Now of course income such as Social Security would help offset this costs but we think this is an excellent way to highlight just how expensive eating can be and help paint a picture of what to have in terms of assets in retirement. Plus, we haven’t even have begun to delve into what potential medical costs might look like for 2 people living to normal life expectancy. However, eating Happy Meals 3 times a day, of course may impact living to average life expectancy…
Would you like help determining how much money you’ll need in retirement? Click on the button below to request your free 15-minute phone consultation with a Bayntree financial advisor.
Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.