If you speak to anyone who actually knows the answer to this question, then they can solve one of the most complex problems we face as we get older.
Here are some reasons why this is not easy to answer.
How long will you live?
It doesn't take a rocket scientist to figure out that we have no clue when we will take our final breath, unless we are facing a terminal illness.
Otherwise, we do not know . . . millions of Americans are living long past life expectancy, and as there are more centenarians than ever before, we are living in a time where it is possible to live as long in retirement as we are living in our earning years.
Will I be sick?
When you are preparing for retirement while you are still earning and you project yourself in old age, if you are a healthy individual, it is hard to imagine yourself with health impairments in the future.
Getting a catastrophic illness like cancer, heart attack, or stroke can severely impact your quality of life, but it also can also cost more to live a normal life.
You may need a special diet, there may be more out-of-pocket expenses for medication, you may need modifications to your home, and dozens of other variables.
How will inflation affect my savings?
Inflation has been averaging a little over 2%, with a historical average of over 3%. If I lock $100 in a safe for a year, that $100 has the buying power of $98 if there is a 2% inflation rate. You can see that over a 20-year period that same $100 only has the buying power of $60. This firms up my argument that it is not sufficient to plan for your savings in today's money. Use an inflation calculator to see what the effect of inflation will be on your money.
What will future tax rates be?
Most Americans are deferring their taxes to decrease their taxable income. They are using qualified plans like the 401(k), 403(b), TSP, 457 . . . they are all similar. They are just IRS codes that allow employees to delay paying taxes on portions of income and make interest on that money. The catch is that when you start disbursing the funds, you will do so at a future unknown tax rate, which could possibly be higher. You will also pay interest on the interest you make on that money, so you may be surprised to find out that you may be on the hook for more taxes than you saved during your earning years.
When I played football, whether it was high school or professional, it was virtually the same game, just a little faster and guys had more skill as I advanced levels. The biggest difference that I can remember was the level of preparation going into the game. We prepared for situations that we could possibly face, we studied the opponent, but come game day you could be in for a surprise. The team that won most of the time prepared the most. We are living in a time where you may need to take the approach of a professional athlete, by preparing for a game plan for your life.
Do not let a financial adviser talk to you unless they have a plan to let you know what you should be scheduled to live on if you live until you are 100. Play devil's advocate with yourself and put some of life's obstacles in the way, like surviving cancer, and factor in future inflation rates, and higher taxes. Don't fall for the trick of just being told what you should be projected to have. That means nothing if you do not know how long it will last you.
Mario Henry, a former National Football League player, is a financial services professional with 18 years of experience in the industry and author of "How to Hire Your House," an innovative guide on how to create a tax-free pension and sustain sufficient income through retirement. Mario also is a licensed insurance broker and a national motivational speaker. He was a wide receiver with the NFL’s New England Patriots and a scholarship football player at Rutgers University.
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