Calculating the true cost of retirement doesn’t have to be difficult, though it may seem hard at first. Experts tend to be all over the place when it comes to the “replacement rates” needed to retire properly. A current replacement rate is hard to predict because the market has been so jumpy over the last few years.
Experts have said a proper replacement rate to obtain is 70% to 80% of your pre-retirement income. This number will be hard to achieve for many, as getting this type of replacement rate would usually involve you working at the same job for 30-plus years, which isn’t what most are doing these days.
David Blanchett, head of retirement research at Morningstar Investment Management, says those rules of thumb/assumptions are shortcuts that can overestimate the true cost of retirement for many investors.
So what is a proper replacement rate? Well, according to Blanchett, a replacement rate between 70% and 80% may be a reasonable starting place for many households, but it doesn’t work so well when you model spending over a couple’s life expectancy, rather than a fixed 30-year period.
There are all sorts of factors that go into retirement planning. There are many white papers available to read that provide valuable information on retirement, retirement replacement rates, investing, 401(k)s and much more.
Check out more from David Blanchett’s white paper below, and make sure you continue to do your research on what it takes to retire properly.
Article Sources: Morningstar Investment Management | MarketWatch