• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Wealth Pilgrim

No Money Worries. No Matter What.

Neal Frankle featured in
  • Home
  • Life Insurance
  • Investing
    • Build Strong Investment Building Blocks To Avoid Going Broke In Retirement
    • Systematic Mutual Fund and ETF Investing
    • Stock Market Investing Guide
    • Choosing the Right Investment Brokerage Guide
    • How Bonds Work Guide
    • How Banks Really Work Guide
    • Annuities – What You Need To Know Before You Invest
    • A Beginners Guide To Buying Individual Stocks
    • Create A Pool Of Great Mutual Funds and ETFs To Pick From To Secure Your Retirement
    • ETF and Index Fund Investment Guide
  • Earn More
  • Banking
  • Retirement Planning
    • Retirement Guide
  • Ask Neal a Question
  • Reviews
    • Upgrade Personal Loans Review
    • Lending Club Review
    • Prosper Review
    • Ally Invest TradeKing Review
    • CIT Bank Review
    • LegalZoom Review
    • Lexington Law Review
    • Airbnb Host Review
    • Should You Drive For Uber?
  • Tax
  • Courses
    • Raise Your Credit Score So You Can Buy a House – Free Video Course

Are You Expecting Too Much In Retirement?

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

I stumbled on a fascinating graphic a few days ago over at Investors Business Daily (a great newspaper for investors). It depicts what most people expect their “retirement” to look like. Have a gander:

retirement expectations

When I saw this I nearly fell off my chair. It clearly shows that only 21% of us expect to retire without being forced to work. Of course some of the people in that 21% could be over-confident and may really have to work in retirement despite their financial fantasies. And some of the people in the 79% group could just be a bunch of pessimists with nothing to worry about. I have no idea (and neither do they) unless and until they run some financial projections.

But the point is that 79% of us walk around with the mindset that they will have to work for the rest of their lives. They think work will always be mandatory for them – never optional. Yuk.  I would hate it if I walked around all day thinking I’d never be financially free. I love my work and never plan to retire. But that’s a choice – not a requirement. And because it’s a choice, I enjoy my day, my work and my life a whole lot more. Happy Pilgrim. Don’t you deserve the same? Of course you do.

How You Can Build A Higher Confidence Level About Your Retirement

As I hinted above, there is really only one way to have anything better than a wild guess about what your financial future may look like and that’s to run your financial numbers. You don’t have to be a complete math nerd to do this and you are not required to hire anyone to do it for you. Oh….and it won’t take you more than an hour to do it too. You just need a little patience and the ability to be honest with yourself.

Your first step is to figure out what you spend now on average. This is much simpler than you might think. All you have to do is look at your monthly bank statement. It tells what your total withdrawals are each month and that, my friend, is how much you spend.

Want this done for you?   Let me help!

Next, make some adjustments for the future. Your retirement spending might be lower (if you will have paid off your mortgage by then and/or have fewer financial obligations) or it might be higher (more travel and medical costs). Make adjustments and don’t worry about the number being perfect. We’re looking for a ballpark figure. Having this estimate (even a flawed number) is a heck of a lot better than what most people have when it comes to projected retirement spending. Most people don’t have a clue and never think about it.  That’s why they walk around with no confidence about their future.

Your next step is to project what your retirement income will be once you stop working. This includes Social Security and pensions and these are easy figures to come by.

Before we go to the next step, it’s important to consider the value and cost of time. If something costs you $100 today it is going to cost more 10, 20 years down the road because of inflation. And a pension of $1500 today will be greater down the road if those monthly benefits have inflation or cost of living adjustments.

In order to compensate for the value and cost of time, you will need to use a “future value calculator” but this sounds much more daunting that it really is. All you really need to use these widgets are you current costs (or pension estimates), the number of years you want to inflate for and an inflation number.

I suggest you keep things simple by using an online calculator and inflate your numbers by 3.2%. That’s the long-term inflation rate and it’s a good conservative number to use.

Once you calculate your future cost of living and future income, don’t despair if your costs exceed your income. We’re not done yet. You still have your investments to draw from.

Use that same calculator to get a ball park figure of what your investments will grow to including annual contributions by the time you retire. Then, multiply this result by 4% to determine what your annual withdrawals could reasonably be. Last, divide the number by 12 to figure out what your monthly income from investments may be.

At this point you have an idea about your future cost of living, retirement income and investment income may be down the road. If you have greater projected total income than expenses you are probably in good shape Pilgrim. If not, you still aren’t doomed to a life of never-ending toil. Consider shaving down some expenses now, saving more and investing for growth. That combination might be enough to secure your financial future.

If, after going through this exercise you still have a short-fall, you will likely have to continue working during retirement – at least until you figure out how to cut your costs further. But even if that is the outcome, you will be in a much stronger position knowing that your retirement expectations are based on facts rather than feelings.

What do you expect for your retirement? Based on what?

Tweet
Pin
Share2

Reader Interactions

User Generated Content (UGC) Disclosure: Please note that the opinions of the commenters are not necessarily the opinions of this site.

Comments

  1. Joanne Mahoney says

    February 21, 2017 at 11:11 AM

    Good article. I too saw the Investors Business Daily article. It is amazing how many people do not think that they will be able to retire completely. Although there are some people that want to do some type of “busy” work. My father in-law did. He retired after teaching for 30 years. In the summer he mowed fairways. He absolutely loved it. Besides the little extra income he earned, the whole family was able to golf for free.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Are You Human? * Time limit is exhausted. Please reload CAPTCHA.

Primary Sidebar

Who is Neal Frankle

Neal Frankle

I'm a Certified Financial Planner™ with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
Read More »

Stay Connected

Facebook Twitter YouTube RSS

More Categories

Career Development
College Funding
Credit Cards
Credit Score Fixes
Money and Marriage
Debt Relief
Estate Protection
Property Investment Loans
Small Business Strategies
Spend Less Money

Disclaimer

Wealth Pilgrim is not responsible for and does not endorse any advertising, products or resource available from advertisements on this website. Wealth Pilgrim receives compensation from Google for advertising space on this website, but does not control the advertising selection or content. Please do the appropriate research before participating in any third party offers. The information contained in WealthPilgrim.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation. Wealth Pilgrim does not provide investment advisory services and is not a registered investment adviser. Neal may provide advisory services through Wealth Resources Group, a registered investment adviser. Wealth Pilgrim and Wealth Resources Group are affiliated companies. In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving payments,access to free products and services for product and service reviews and giveaways. Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.


About · Contact · Disclaimer & Privacy policy

Copyright © Wealth Pilgrim 2021 All Rights Reserved