How much money is enough for a comfortable retirement?

This episode explores the question of what is enough money for a person to live comfortable in retirment from age 65 to the end of their life.

Transcript

SPEAKER_02 0:56

Whether you've just started your financial journey or you've been around the block. Welcome to money. Finance and investment with Mr. Will.

SPEAKER_05 1:20

If you are 40 to 50-ish years old, how much money is enough money to have saved up for retirement if you want to retire at the age of 65?

SPEAKER_00 1:35

That is a great question, and I'll be 50, so it's very relevant. I actually think it depends on the level of compensation that you want to make. I would take my salary multiply that by the number of years I'm gonna live, and and that would make me comfortable, and then I would say this is the amount of money I believe I need, uh, but it's hard to give you a number because I think that's subjective based on each person.

SPEAKER_04 2:28

If you're in your 40s or early 50s, right?

SPEAKER_05 2:35

If you retire at 65, how much money will you need to live comfortably in retirement?

SPEAKER_01 2:48

Probably 4 million dollars.

SPEAKER_05 2:51

You said 4 million?

SPEAKER_01 2:53

Correct.

SPEAKER_05 2:55

Okay. Uh what how what what makes you come up with that number?

SPEAKER_01 3:03

So, and probably probably less, it's probably two, but but my four million is I'm going, and I hope I don't have any health issues moving forward in my life, but I go, I think a high yield savings account at 5%, and what that will roll off, and that's a general number. So I think that's what 5% of 4 million is what? Is that 200,000? Am I wrong?

SPEAKER_04 3:30

You're right.

SPEAKER_01 3:31

Okay. So that gives me less than $20,000 a month. Now, obviously, if I don't have a mortgage, that you know, if I pay that off, then that can that creates a very different situation for me. But then you still got taxes, insurance. You don't get older and usually get healthier, so you want to make sure that and healthcare is getting out of control these days, in my opinion. So if you know my buddy, he only has one kidney though, but him and his wife, he they I think they pay like $3,300 a month for health insurance, he's they self-employed, so okay, that's just a quick snap of how my brain processed it.

SPEAKER_05 4:11

So, in your opinion, for a person who is 40 to 50 years old, how much money should they have saved up for retirement if they want to live a comfortable retirement when they retire, if they retire at the age of 65? Okay, is that total or is that per year?

SPEAKER_03 4:49

I'm gonna say I'm gonna say per year.

SPEAKER_05 4:59

Per year.

SPEAKER_03 5:01

It's possible.

SPEAKER_05 5:02

Okay, so you're saying they should have available to them two hundred and fifty thousand dollars per year to live off of the same. If you are forty to fifty years old, how much money is enough money for you to have a comfortable retirement if you retire at the age of 65?

SPEAKER_03 5:40

Would y'all like the comfortable thing? So for me, the comfortability would be able to maintain my salary for at least 20 years. So I would need at least two million dollars to comfortably be okay at 65.

SPEAKER_05 5:57

Welcome back, everybody, to today's episode of Money, Finance, and Investments with Mr. Will. And as I told you all in the last episode, that we were probably going to be talking about retirement this episode. And so after I put pen to paper and gave it some diligent thought, I decided to go ahead and move forward with that subject for today. So as you can see from the intro to the podcast and the participants who shared their opinions with us, we're talking about retirement. And I think that it's a really relative subject because in my profession and you know what I do on a regular basis, this is a common challenge that I encounter with people who are trying to decide when to stop working, or trying to decide you know whether they can stop working at a particular age, if they need to get some other type of work or or something. So it's a significant uh issue and unfortunately one that many people aren't currently prepared for and aren't adequately preparing for. So I thought that today would be a good day to take on that subject. So what's the answer to the question? Let's clarify what the question is first and foremost. So the question is how much money is enough money to live comfortably in retirement? So you heard several responses um at the beginning of the episode. So what's the answer? Well, the correct answer is it depends. There is no one-size-fits-all answer as it relates to what is the correct amount of money to prepare for retirement. So let's kind of peel the onion back a little bit and let's address what some of these conditions or variables are when I say it depends. Okay. So, first of all, it depends on what your income situation is. Depending on what you did while you were working and how long you worked, you may have a pretty decent social security benefit. Okay. Now I know that you know everybody's talking about social security is not going to be around, and you know, people are all in a tizzy and and nervous, but I'm going to share some information with you in a little bit that is going to at least give you something to think about as it relates to whether or not social security will be around. My opinion is America can't afford to let Social Security not get resolved because of the amount of people who depend on Social Security and the condition that that would put people in if Social Security was not available as a supplement for retirement in addition to whatever else a person may have. Okay. So that's the first thing. So what's your income situation? Okay. So do you have a substantial Social Security benefit based on your earnings for your highest 35 years or the average for your highest 35 years of working? Because that's how Social Security calculates your benefit. The other scenario is did you retire from an employer that's paying a pension? Federal government, state governments, school systems, some corporations still offer pension benefits. Were you in the military? Do you have you know a retired military benefit andor a disability benefit? Like all of these things come into play. Did you purchase a couple of homes and keep those homes as you moved out of them for rental properties? And so you got rental income coming in. Like, what is your income situation? Because I know many people whose income situation is such that they don't need any savings at all. Now they have it, and some of them have a lot of it, but I know plenty of people who their monthly income in retirement is north of $15,000 a month. So if you got $15,000 a month coming in in retirement, and your house is paid for or almost paid for, and you don't have a whole lot of debt, and you don't live a reckless, foolish, you know, lavish lifestyle, you don't need any significant amount of money saved up because your monthly income base is more than suitable to take care of your lifestyle. So what's your income situation? That's one variable, of course. What is your geography? Where do you live? You know, there's a difference in the cost of living from California to Chicago to Des Moines, Iowa, to West Virginia, to you know, Oregon. Like, where do you live? Because where you live and the lifestyle that you live, which is the next item on the list, may warrant that you don't need a whole lot of money saved up uh for you to be comfortable in retirement. What about your health? What's your health situation? I know many people who long before retirement have health situations. Matter of fact, I'll give you an example. I have a member of my family, and that member of my family is not in retirement, and they have several more years to work before they retire, and that person is in dialysis. So they already have health situations that they have to take into consideration for when they stop working and the cost associated with that. Now, you may not have health uh dialysis, but you may have high blood pressure, which is common. You may have sugar diabetes, you may have high cholesterol, of which you're taking medicine for now, maybe in your 50s and you ain't retired yet. Well, that's going to impact how much money you need because those are expenses, and there are potential associated other health factors that come into play from a maintenance perspective that may impact and probably will impact the amount of money you need to live off of. So we got income situation, we have geography, we have lifestyle. When I say lifestyle, you know, lifestyle means you know what do you like to do? Do you like to go out to eat all the time? Do you like to go out for entertainment a lot? Do you, you know, like to drive luxury vehicles? Like what's your lifestyle? Do you do you do you dress high-end clothes and like to do a lot of shopping and you know, wear a lot of bling bling? And you know, what's what's your lifestyle? That's going to impact how much money you need to continue to sustain that lifestyle and be comfortable, right? Of course, we just mentioned health, but there's another aspect of this that impacts what your ultimate amount of money needs to be in retirement, and that's family dynamics. Are you married? Are you single? Do you live in a situation or environment where you live with other family members? And collectively, you all share expenses. I know many people who have those types of situations, they're a close-knit family, you know, they were married or got divorced, or spouses passed away, or some similar type of dynamic, and these people, you know, sometimes they're from the south, sometimes they're from you know, uh uh the Midwest or other areas, and they decide that, you know, when I retire, me, me and my sisters and my, you know, me and my brothers, or me and my cousins, or whoever, whatever the family relationship is, we're gonna live together. Okay. So, well, if that's your situation, then that's going to impact how much money you need. So ultimately, the answer is it depends. It's different for every person, and every situation warrants its own um its uh warrants its own scenarios as to what's going to make sense. Okay now the next thing that I want to address is how do you define comfortable? Because that's a relative question. What's comfortable for me may not be comfortable for you. What's comfortable for you may not be comfortable for the next person. You could be married, and what's comfortable for you if you're a male, may not be comfortable for your wife. So how do you define comfortable? And this question here is a question that goes right to the heart of your psychological state, your emotional state, and your physical state. So, what's comfortable psychologically? For example, you could be a person who has achieved a certain status in life, whatever that particular status is, and in retirement, it may be a requirement for you psychologically to maintain that status. So then that's going to dictate what's comfortable. So when it's time to get a new car, you were the superintendent of schools for ABC County, and you have this long-standing legacy in the community for you know being involved in the community and you know doing these charitable things and what have you. And so when you retire, it may be a psychological requirement for you to maintain the status quo. So a Toyota Camry may not be appropriate for you to drive when it's time for you to get a new car. You may need a Cadillac Escalade. And if you know anything about cars, you know that there's a significant difference between a Cadillac Escalade and a Toyota Camry, right? So what's your psychological state? Because that's going to impact how you define being comfortable. But not only your psychological state, what's your emotional state? That's going to impact how you define being comfortable. Right? Because psychologically is one thing, but emotionally is a whole nother thing altogether. Because emotionally you could be a person who is subject to being depressed or a person who is um like on a on an emotional roller coaster, and that could be impacted by how you are perceived, or it could be impacted by um your ability to live the way that you want to live. So that so that affects what you consider to be comfortable. And then of course, physical. Like what is what is your physical situation and physical situation from a health perspective, but then also physical from a perspective of like your the the the the the tangible um how am I trying to communicate this? The the tangible physical environment that you live in. Like what does that look like? What does that feel like and and what does that need to be for you to believe or feel that you are comfortable? So these are all are all things that will ultimately shape the answer to that question. That question of how do you define being comfortable? Okay, so we got um the first part is it depends, right? What's comfortable in retirement and how much money you need, it depends. We got the second part of this, which is how do you define comfort? Because you're defining comfort is gonna impact how you spend money. For an example, if you need uh leather furniture, because or you know some specific type of physical item for you to be comfortable, the cost of that may be substantially different than something else, right? Do you certain type of clothing? You know, do you do you have to have certain types of clothing, certain types of material? These are physical things, right? I'm not even talking about just the the cost of it or the look of it, but the the physical aspect of it, right? Those things are a part, and people don't think about this, but those things are a part of because that's those are decisions that people make, and those decisions have a cost associated with them. And so I'm just bringing this up in terms of addressing this question uh regarding money because all of these things will impact money and how much you need in order for you to feel comfortable in retirement. Now we got all those things. Now I'm gonna circle back to something that I said in the beginning when I was talking about social security. Okay, and really. This goes to the question of how do you make it happen? Meaning, how do you make a comfortable retirement happen? Because if you aren't there yet, then obviously you have to do the things that you need to do in order for you to be able to get there. Right? So then how do you make it happen? Well, in the industry that I'm in, which is the financial services industry, there is a something called a hundred person story. Now, depending on who you hear this from and what year it was told, it varies. And that information is not the 100-person story, but that information the information is related to the 100-person story. So here's here's the 100-person story. If 100 people, for every 100 people who start working, let's say at the age of 25, and they work to the age of 65, here's what the 100 person story says happens. One of those people will be wealthy. So now wealthy would be, you know, your Oprah Winfrey's, your Elon Musk, your Jeff Bezos, your you know, uh your um you know, your your mega rich, your mega wealthy, you know, uh people, your Bill Gates, you know, um, your Michael Jordan's, you know, Bob Johnson's. You got you got all these people, the wealthy. Okay. Now, you don't necessarily have to be at that level. There are people who are, you know, some lower levels, but they're still wealthy. Okay, Beyonce, Jay-Z, you know, people such like that. Okay. Then the next level is people who are financially independent. Of those 100 people, 19 of them will be financially independent. Now, what's financially independent? They may be people who are, you know, millionaires, but they may not be millionaires. They may be people who, like in the example that I mentioned earlier, I know people who they are financial and their monthly income is north of $15,000 a month. They don't have a million dollars saved up in their in their assets, but the accumulation of situations over their working life position them so that the amount of money that they have coming in is money that pretty much makes them financially independent because these are passive sources that are you know coming in until they die. So that's a person that's financially independent, right? So 19 people end up financially independent. 19 people died out of this 100. That leaves 61 people, the remaining 61 people are dependent on either Social Security, family, or charitable organizations or some combination thereof. Of that 61 people, of those, of those 61 people, 15 of them are in poverty. Meaning, even with their social security, they're still in poverty. But even for the ones who are not in poverty, if social security is taken away from them, they will be in poverty. So that's one of the reasons why I said what I said at the beginning about Social Security, there's going to be some solution to fix the issue. Okay. But you know, these are these are these are real things. Now, those those those numbers that I gave you, um I can't like swear to you that those numbers are 100% accurate because I was uh passed on this information once I got into the industry. But this this this 100% story has been around for a long time. Uh, and there is some data that I'm getting ready to give you right now that supports that that there's some accuracy to it. This is from the Social Security Administration, but I'm getting ready to read. This says that about half of the population age, 65 or older, live in households where Social Security benefits account for at least 50% of their income. 50%. Okay, so that's half of the population of people that's 65 or older. Alright? It says that in the top 20% of the households income distribution for those age 65 or older, Social Security only accounts for about 12% of their aggregate income. So for these people that are 65 and older, the the top 20% of that population, those people, Social Security only represents about 12% of their income. So if you take that away, they're still doing okay. They fall into that category of uh financially independent. Okay. This says that about 5% of Americans reach a state of being financially independent. This also, of course, includes the wealthy people. So I said one person is wealthy, uh, 19 are are independent. Um, but this says that 5%, of course, that 5% will include the the um the wealthy as well as the financially independent. Okay, so this number is obviously vary from the number that I gave you because the number I gave you said that about 20 in total when you look at the um the wealthy and the and independent, 20. Well, out of 100 people that actually represents 20 percent. Okay, so that's a high number. I don't think that that number is accurate. I think this number is more accurate than the number that I that I uh gave you when I gave you this the 100 person story, right? But here's some more information to support that, okay. This is according to the Social Security Administration. More than 17 million Americans that are age 65 and older are living at or below the federal poverty line, 200% of the federal poverty line, meaning that they have an annual income of about $30,000, $30,120 to be exact. This was as of 2024. You can look all of this up. Um, it's public information that counts for about one in three adults that are 200% below the poverty line. Okay, so when you kind of put this in perspective, then you know, I don't know what the number is. I don't I didn't even look that up. Um, I don't know what the number is that's actually at the poverty line. Uh, because obviously that's a higher number than this number, because this number is people who are well below the poverty line, um, at 200%. Okay. Uh this here's another. This says in 2023, 11.2 million people age 65 or older were still actively working or looking for employment. And then here's the number that I wanted to close with. For Americans age 45 to 54 who are not yet retired, but you know, 10 to 20 years away, the average household retirement, this is households, so this is not necessarily individual, uh, this is households, is about 313,000. The median number, however, is more representative of the figure for a typical family, which is about 115,000. And according to this survey, the average 401k balance for those with worth kick with workplace plans, the average balance is approximately $188,643. So I say all of that to say that there's a significant issue with people being prepared for retirement, and this is just in America. So, how do you fix that problem? You gotta have a plan. If you don't have a plan, you either have to be very fortunate to be in the right situation, or you're setting yourself up for failure. And then lastly, you got to be willing to take some risks, especially if you are 40 years old, 45 years or older, you got to be willing to take some risks. Look into some business ventures or some investment opportunities, but you got to be willing to take some risk, and you have to really prioritize what you do with your money. So, next time we're going to talk a little bit more about money and what people should do, or how people should manage their money. So, until next time, you all have a wonderful week and tune in next week for money, finance, and investments with Mr. Wheel. I'm out.