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How Much Retirement Income Will You Really Need?

How Much Retirement Income Will You Really Need?

Don’t Underestimate Lifestyle Costs, Time Horizon, Medical Expenses and Inflation

By Clark Kendall

What is enough? If you’re considering retiring in the near future, you’ve probably heard that
you need about 70 percent of your end salary to live comfortably. This estimate
is frequently repeated … but that doesn’t mean it is true for everyone. In
fact, even this article can’t tell you how much retirement income you’ll need.
You really must meet with a Certi­fied Financial Planner TM (CFP®) or Chartered
Financial Analyst (CFA) and discuss your lifestyle desires and short-term and
long-term expenses to arrive at a realistic retirement income goal.

That being said, here are some often overlooked factors that
influence retirement income needs.

Health. Most of us will face a major health problem at some point in our lives—perhaps even
multiple or chronic health problems. Think for a moment about the costs of
prescription medicines and recurring treatment for chronic ailments. These
minor and major costs can really take a bite out of retirement income, even
with a great health care plan. While generics have slowed the rising costs of
prescription drugs by about 1 to 2 percent a year, one estimate found that a
65-year-old who retired in 2007 would need $215,000 to pay for overall
retirement health care costs—up about 7.5 percent from 2006.

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may
live as long or longer. Imagine retiring at 55 and living to age 95 or 100. You
would need 40 to 45 years of steady retirement income. A statistic I like to
share with current retirees is that if a couple retires today at 65 years of
age, there is a 50 percent chance that one of them will live to see his or her
90th birthday.

Portfolio. Many people retire with investment portfolios they haven’t reviewed or managed in
years and with asset allocations that may no longer be appropriate. New retirees
sometimes carry too much risk in their portfolios, resulting in a retirement
income from their investments that fluctuates wildly with the vagaries of the
market. Other retirees are super-conservative investors: Their portfolios are
so risk-averse that they can’t earn enough to keep up with even moderate inflation.
During the past 30 years, employees have enjoyed the switch from employer-sponsored
pension plans (de­fined bene­fits) to employee-managed plans (de­fined
contribution) such as pro­ t sharing, 401(k) and 403(b) plans. These
employee-managed plans allow employees to manage their funds for their

Spending habits. Do you only spend 70 percent of your salary? Probably not. If you’re like many
Americans, you probably spend 90 or 95 percent of it. Will your spending habits
change drastically once you retire? Again, probably not. Most people only
change spending habits in response to economic necessity or in pursuit of new ­
financial goals.

Social Security (or lack thereof). In 2005, Social Security Income (SSI) represented 39 percent
of a typical 65-year-old retiree’s income. By 2030, SSI may only replace 29
percent of that income, after deductions for Medicare premiums and income
taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay
income tax on a portion of their bene­fits. And all of this presumes that
Social Security will still be around in 2030.

So will you have enough? When it comes to retirement income,
a casual assumption may prove to be woefully inaccurate. Meet with a Certi­fied
Financial Planner (CFP®) or Chartered Financial Analyst (CFA) while you are
still working to discuss your retirement needs.

Clark Kendall is the only professional worldwide with Chartered Financial Analyst (CFA), Certi­fied
Financial Planner TM (CFP®) and Accredited Estate Planner (AEP) designations.
With more than 25 years of seasoning in investment management and wealth
management strategies, Clark is also a former equity seat holder on the New
York Stock Exchange (NYSE). Clark is focused on providing intelligent and
independent ­ financial direction to individuals and families located in
Montgomery County. He may be reached at or

Published in the July/August issue of Montgomery Magazine.

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