Updated: May 3, 2013 12:14PM
Originally published: August 28, 2005
For those Americans who are clueless about planning for retirement -- and there are lots of them -- Terry Savage has come to the rescue.
In her new book, The Savage Number: How Much Money Do You Need to Retire? (Wiley, 256 pages, $24.95), the personal finance expert and Sun-Times columnist provides hands-on techniques to plan a successful, satisfying retirement.
Here, in the first of two parts, is an excerpt.
Can you retire?
You want a simple answer to your most important financial question:
How much money do I need to retire? And then you have one more question: How much money can I spend every month and not run out of money before I run out of time?
Well, let me ask you a few questions:
At what age do you want to retire?
How much money have you saved today?
How much money do you think you’ll need every month for living expenses?
What’s your estimate for the inflation rate during your retirement years?
What’s your risk tolerance for investments?
And by the way, how long do you think you’ll live?
If you knew those answers for sure, retirement planning would be easy. But life is filled with uncertainty. That’s no excuse for avoiding the issue.
A quick search of the Internet on the subject of retirement calculators offers nearly one hundred Web sites, mostly from financial services companies and financial planning firms. They will instantly calculate how much money you need to retire based on your answers to those basic questions. The amounts may be intimidating.
One of the best online calculators is the “Ballpark Estimate Worksheet” at www.choosetosave.org. It will show you how much you should be saving every month. You can use the Society of Actuaries’ Retirement Probability analyzer, available at www.soa.org to get a more sophisticated analysis of how long your nest egg is likely to last.
But you’ll need more than these calculators to plan for a successful retirement. You need personalized advice about how to invest your money along the way. And you’ll need a withdrawal plan that ensures you won’t run out of money before you run out of time.
Now that kind of personalized advice is within reach of the average American, in a format that is not only understandable and practical, but individual. It’s called Monte Carlo modeling, but it has nothing to do with gambling. Quite the contrary. It’s a very exacting analysis of probabilities. And it’s the basis for making informed decisions about our retirement finances.
The Savage Number -- how much money you need to retire --is a personal and unique number, but it is knowable. It comes with retirement years with enough money to cover foreseeable expenses. In fact, the Savage Number is readily available to you, at no cost but your willingness to think about it and accept help. It will take more than a few minutes and a few mouse clicks, but it will be well worth your time.
You’ve seen the familiar headlines: “Baby boomers can’t afford to retire.” You can respond in one of two ways: (1) You can refuse to think about it, or (2) you can take time to figure out your options and get help. Believe me, getting good help with retirement planning is easier and less expensive than you think. The whole point of this book is to show you the way.
The entire financial services industry is gearing up to serve you, the baby boomer approaching retirement. For the past decade, mutual funds, banks, and brokers have been trying to get you to invest. Now they’re trying to help you retire.
You may not have a lot of money saved. In fact, you may not have saved anything. You may be living with credit card debt. Time marches on, even if your investments don’t. And at some point in the future, you’re going to want to retire, or your job will retire from you.
What does the word retire mean? Each of us will have our own definition. For some, it’s a full-time vacation in a sunny spot near a golf course. For many more, it will be a part-time job to maintain a reasonable standard of living. And for some, it will be dependence on programs like Social Security and Medicare.
Odds are we’ll live longer than our parents will. And odds are they’ll use up all their money living longer than they planned. So we won’t have an inheritance to rescue us. And odds are our children -- for those who have them -- won’t want to spend their scarce dollars taking care of us.
Should we be scared? Absolutely not. We’re the generation that grew up in the shadow of the Cold War and the Soviet Union; nuclear fears and the Doomsday Clock; unprecedented inflation that spawned a 21 percent prime interest rate and 15 percent mortgage rates; the worst recession (in 1980-1982) since the Great Depression; the biggest bear market since the crash of 1929; and the worst terrorist attack on our country since Pearl Harbor.
We’ve survived all that. Certainly we can survive retirement! And we can do it in style, if we start thinking about it now -- thinking about the balance between living our lives to the fullest today and giving ourselves a chance at the lifestyle we want in the future. Small steps taken now, while we are earning our best income and in good health, can make all the difference. Those steps may cost more in attention than they do in dollars -- hence the term “paying attention.”
Baby boomers have always changed America, and we’re about to do it again. It doesn’t take magic. We have computer technology on our side. It will provide the Savage Number, which, along with self-discipline, will bring us to our own secure retirement.