Should You Overestimate Your Retirement Needs?

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What Will Retirement Be Like?

That’s the ultimate retirement question, right?

Who knows.

There are so many moving parts when it comes to retirement expectations: life expectancy, out-of-pocket medical expenses, inflation rates, investment return, taxes, etc.

How could anyone possibly predict any of these things correctly?

It certainly makes you want to just throw your hands up and say “forget about it”. But we all know that’s a bad move. Not just because it will make you sound like Donnie Brasco.

But because one thing is for certain: you will retire. Or you will at least get to a point where you can no longer work and provide for yourself. And at this point you’ll need to bridge the gap financially until you die.

The question then becomes, what do you want your standard of living to be like during that period? Last week we discussed social security and how it is supposed to replace about 30%-40% of your income in retirement. Could you live off of 30% of your current income? I suspect that most of us could, but don’t want to.

That leaves only one solution: making an attempt at your own retirement savings.

So when you’re playing around with your favorite retirement calculator, thinking about what you’ll need in retirement, I’d encourage you to use long life expectancies, high inflation rates, etc.

Be overly-conservative in your approach. There’s no harm in expecting you’ll need more. Overestimating and then underachieving is better than underestimating and achieving.

Photo by pedrosimoes7.

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