From
Your Perspective:
Identifying an investment strategy
Your future needs
Projecting your future income needs can tell you
how aggressively or conservatively you should invest. Chances
are that you may need more than you think. People are living longer
all the time, and you could easily spend 30 or 40 years or more
in retirement.
The general rule of thumb is that in retirement
you’ll need around 85% of your preretirement income to enjoy
your current lifestyle. But you may need considerably more —
even 100% or more of your current income — if you have expensive
hobbies, plan to entertain, indulge yourself, or travel extensively.
It all depends on your priorities and your expectations.
For example, suppose you’re earning $70,000
the year before you plan to retire:
Current annual income: $70,000 Percentage required: x .85 Income needed: = $59,500
And that’s just for the first year. In each
of the following years you’ll need even more to compensate
for the rate of
inflation.
For example, if inflation boosts the cost of living
by 3% during the first year you’re retired, you’ll
need $1,785 more the next year, or $61,285, just to stay even.
In addition to the
income you’ll receive from your 401(k), you can expect
to receive money through Social Security. Everyone over 25
who is part of the Social Security system receives an annual
statement with an estimate of that amount. If you’re
younger than 25, you can request a copy.
