In these uncertain times, it is natural (for Baby Boomers anyway) to wonder whether retirement or partial retirement may be financially viable. We have seen several articles discussing how much savings may be necessary to enjoy a “comfortable” retirement. In this post, we remind our readers that with the help of one of our Actuarial Budget Calculators for retirees (Single or Couples), and just a little bit of number crunching, you can derive a pretty good idea of how much you may need. We point you to our post of August 25, 2019, “Is $1 Million of Savings Enough?” for a step-by-step example of the approach we recommend.
Rather than:
- simply guess,
- listen to your Uncle Ned, or
- base your decision on survey information (some of which is discussed below),
we encourage you to crunch your own numbers based on your specific situation and goals.
Schwab 401(k) Survey
This recently released survey indicated that Baby Boomer respondents thought they would need $1.6 million to enjoy a comfortable retirement. The survey did not indicate how this number was obtained and does not appear to be terribly reliable.
20th Annual Transamerica Retirement Survey of Workers (Baby Boomers only)
Page 88 of this survey summarizes responses to the question: “Thinking in terms of what money can buy today, how much money do you believe you will need to have saved by the time you retire in order to feel financially secure?”
Estimated Savings Needs | Baby Boomers |
$0 to less than $500K | 43% |
$500K to less than $1M | 23% |
$1M to less than $2M | 20% |
$2M + | 14% |
Median | $500K |
Note that:
- some of the Baby Boomers included in the survey participate in some type of company funded pension plan (page 83),
- over half are married (page 139), and
- over half plan to work after retirement (page 73),
So, it may be difficult to accurately compare how much savings you may need with this survey information.
Page 89 of the survey asks the follow-up question to the one asked above: “How did you arrive at that number?” Here are the summarized responses for Baby Boomers:
Basis of Estimating Retirement _______Savings Goal_______ | Baby Boomers |
Guessed | 43% |
Based on current living expenses | 27% |
Used a calculator or used a worksheet | 10% |
Expected earnings on investments | 7% |
Read/heard that is how much needed | 5% |
Amount given by financial advisor | 5% |
Other | 3% |
Total | 100% |
It should be noted that most of the Baby Boomer respondents in this Transamerica survey were still working. We certainly hope that a much lower percentage than 43% would guess at their number if retirement were imminent. It is somewhat encouraging to us to see that 37% (27% + 10%) of the respondents did base their estimate on current living expenses and results from calculator/worksheets, which is what we recommend. But we doubt that these individuals used our spreadsheets for this purpose.
Summary
Looking at survey data and reading articles about how much you should have in order to retire is fun, but it can be misleading. It is important to reflect your own situation and your own retirement goals. If you are considering retirement in the near future, we recommend that you crunch your numbers like Tom and Gina did in the example we went through in our post of August 25, 2019. We assure you that it will be well worth your effort.
