Median life expectancies are now 83 and 87, respectively, for men and women, so half of all Americans will live longer-much longer, in many instances.
Financial advisors often tell clients to project retirement expenses until age 100. Thus, retirement at age 65 may last for 35 years or more. It’s very likely that a retiree who now spends say, $60,000 per year may ultimately be spending $100,000 or more.
How large a portfolio will you need to provide an income that starts at $60,000 per year and gradually escalates?
That depends on various assumptions you make. How much will you be able to invest each year and how rapidly will your investments grow? If you prefer to be conservative you might project returns of 8 percent pretax and 6 percent aftertax from a mixed portfolio of stocks and bonds. You need to be very prudent because you won’t earn a steady 8 percent each year.
You’ll have some ups and downs, over the course of your retirement; a sharp market correction in the early years of your retirement, as has happened in recent years, may have an adverse impact on your entire plan.
