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What's Your Number?

A common concern for those approaching their second half, is confusion over just how much we should save for retirement. This “number” represents the amount of funds and resources we will need to enjoy an active life and feel productive in our remaining years without running out of money. This is not a one-size-fits-all answer.

First, ask yourself what your retirement looks like. Will you work part-time, maybe volunteer or just play golf all day? Do you want to travel or have you traveled enough in your professional life? Only after you determine your goals for retirement with the how, what, where and when of your remaining years do you begin to talk about the “number”.

How much retirement savings will you really need? What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% - 80% of your salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. In order to form a realistic picture of your income needs, and thus your savings, you must also account for your personal lifestyle as well as potential healthcare costs, longevity and inflation.

Although healthcare seems to be a huge wildcard these days, we do know that we will be increasingly more responsible for our own health care expenses. Recently, Fidelity Benefits Consulting estimated that a 65-year-old couple retiring in 2016 would have needed an average of $260,000 (in today's dollars) to cover medical expenses throughout retirement. Those figures factor in the current premiums for Medigap and Medicare Part D outpatient drug benefits to supplement basic Medicare, along with estimated out-of-pocket expenses for prescription drugs. Those figures do not include the cost of nursing homes or long-term care.

Another concern that affects our “number” is how long will we live? If you come from a family where people frequently live into their 80’s and 90’s, you may live as long or longer. So if you plan on retiring at age 60 and project living to 95 or 100, you will need 35-40 years of steady retirement income. And over that time period inflation is likely to decrease your purchasing power and increase your need for increasing withdrawals. Other factors that come into play are whether you expect to receive a pension, your calculated social security benefits and whether you plan to leave a financial legacy to your family or favorite charity.