The Magic Number
As of this writing, April 5, 2024, a number of news outlets are reporting that “the magic number is $1.5 million”. This is supposed to be the amount of financial assets needed to retire. This is at least misleading, and at worst ridiculous.
There are many reasons why this headline is not worth the ink (or electrons) it’s printed on. Let’s consider why I say this: This is based on some assumptions, all of which probably do not apply to you. Health, other retirement income, other financial situation specifics.
If you are in excellent health and have a good familial health history, your longevity may well be longer than the assumption that was used. On the other hand, if you are in poor health and have a familial health history related to inheritable diseases, then your longevity is possibly less than reflected in the assumptions.
Do you have a pension? While admittedly these are less prevalent than they once were, the presence of one in your future will certainly decrease the amount of other income you’ll need in retirement.
How much Social Security retirement benefit are you anticipating? This will vary depending on how long you worked, what your income is/was during your working period. If you didn’t work but have a spouse that did, you are entitled to some Social Security retirement benefit based on your spouse’s income history.
Disabled people may be entitled to other Social Security benefits. Also, they may have additional medical and rehabilitative costs not reflected in the study assumptions.
Do you own your home or rent? Owners likely have equity in their homes; renters do not.
Then there is the one major variable of lifestyle. For example, do you need to take multiple annual international trips, or are you a stay at home recluse? A traveler will clearly require more retirement income than a recluse. Do you need steak every day, or does chicken satisfy you completely? Is a compact car that you keep forever sufficient or do you need a luxurious foreign sports car? And on and on…
The purpose of this blog is only to show that a single number goal for retirement assets is not applicable to everyone, perhaps not even to anyone. We’re all individuals with different lifetime and retirement expectations, and goals. Therefore, our needs for retirement income must be different. As with so many other things, one size does not fit all.