Although having a retirement savings number is important, it’s also a moving target.
The internet abounds with retirement calculators that will help you estimate the size of the nest egg you’ll need so that you don’t outlive your retirement savings. It makes sense. Business gurus tell us you can’t improve what you don’t measure.
We set other measurable goals in our lives so what’s the problem with aiming for, say, $5 million in savings by age 65? It sets us up for complacency, says Vicki Bogan, associate professor of economics at Cornell University in Ithaca, New York. “Anchoring on a specific number — and saying once you get [to] that number you’re done — is not the best idea,” she says. “The calculation of that number is predicated on a lot of assumptions.”
Experts generally recommend having enough savings to generate about 80% of your preretirement income annually, after factoring in what you’ll get from Social Security and any pension. You’ll need a larger amount if inflation increases, the stock market falters or your health care costs rise more than expected. You could scale back if you move to a less expensive area or if inflation stays low.
Right now, a booming stock market is convincing people to retire early because they’ve already hit “the number,” says Allison Schrager, senior fellow at the Manhattan Institute. “I can’t blame them. The retirement industry has been really negligent in getting people overly focused on that number.”