Retirement Needs, Part 1
Just how much is enough?

by Ann Coleman (TMF

Reston, VA (June 28, 1999) -- How much do you need to retire? This is a very popular question, especially for the boomers among us. I don't intend to provide a definitive answer today, by the way. Just some things you might want to think about on your way to that definitive answer.

There are two major factors you need to think about. First, how much you need in annual income? Second, how large a portfolio you will need to generate that annual income?

Many retirement planners suggest that you look at your annual income in retirement as a three-legged stool. (Yes, I actually saw that worn-out phrase used more than once!) The three legs are Social Security, private pensions, and your own savings. The usual drill is to get your projected payout from the Social Security Administration, add your expected pension benefits, if any, to it, and then plan to make up the difference from your private savings. (And adjust the whole thing for inflation, of course.)

However, for many people, that stool is one leg short. Actual "pensions" are losing ground rapidly to the 401(k)-type plans, which are far better for most investors -- as long as they take full advantage of them. A 401(k) is your own private savings. You invest it, you take it with you when you leave the company.

Then there is the question of whether or not social security will really be there for us. I used to think that relying on social security was like expecting to fund your retirement with the Publisher's Clearinghouse Sweepstakes. A lot of people still feel that way, but I've mellowed. I no longer think it is likely to just go away. But whether it will be available in the same form to all of us throughout a, hopefully, very long retirement is another story.

Therefore, I have a suggestion for you to consider. If you can, plan for your retirement as though Social Security were going to go away. In other words, forget the stool. Plan to stand on your own two feet.

The further you are from retirement age, the easier that will be to do. And if you are within 10 or 15 years of retirement, you are forgiven for thinking that this is a bad idea.

Here's another rule-of-thumb that is rapidly becoming obsolete. The old saw about how you will need 70% of your preretirement income after you retire. I hope no one has swallowed that line whole. There are just far too many variables for any one-size-fits all solution. It's dumb to even try to think that way.

If your retirement planning includes a house that is paid off by the time you retire (and good for you, by the way, for resisting the urge to buy up), 70% of your preretirement income may very well provide a nice, even luxurious, retirement. But if you did "buy up," somewhere along the way, and plan to stay in your home, well, obviously, you may need to customize that 70% figure a bit.

What about the needs of kids or parents? Demographic trends show kids being dependent longer than ever before, and the miracles of modern medicine are keeping our parents around for longer than ever before, too.

Then again, if you are unlikely to be encumbered with family and you plan to move to your (paid for) beach cottage in Mexico, your needs may be modest.

Of course, the lifestyle you plan for will be influenced by the kind of money you expect to have. If twin oceanside condos (Maine in the summer and Florida for the rest of the year) are in your plans, you've probably got a fair-sized nest egg started already.

The point is to plan for your retirement -- not someone else's.

Tomorrow: Chris Rugaber moves to the Tuesday slot. We will look at retirement dollars and sense on Thursday.

Fool on and prosper!

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06/28/99 Close
Stock  Change   Last
CAT  +2  1/16  60.69
JPM  +5  1/2   134.06
MMM  -1  1/4   87.00
IP   -  15/16  51.31

                  Day    Month   Year   History
        FOOL-4   +1.21%   3.23%  25.34%  27.20%
        DJIA     +0.97%   0.90%  16.84%  16.37%
        S&P 500  +1.22%   2.27%   8.89%   9.15%
        NASDAQ   +1.95%   5.34%  18.69%  20.32%

    Rec'd   #  Security     In At       Now    Change

 12/24/98   24 Caterpillar   43.08     60.69    40.87%
 12/24/98    9 JP Morgan    105.51    134.06    27.06%
 12/24/98   14 3M            73.57     87.00    18.25%
 12/24/98   22 Int'l Paper   43.55     51.31    17.82%

    Rec'd   #  Security     In At     Value    Change

 12/24/98   24 Caterpillar 1034.00   1456.50   $422.50
 12/24/98    9 JP Morgan    949.62   1206.56   $256.94
 12/24/98   14 3M          1030.00   1218.00   $188.00
 12/24/98   22 Int'l Paper  958.12   1128.88   $170.76

              Dividends Received      $49.99
                             Cash     $28.26
                            TOTAL   $5088.19