Q: I am in my 60s and would like to retire soon; however, I am not sure if I will outlive my savings. I read a report somewhere stating that if you want to know if you have enough money to live comfortably in retirement, multiply your salary by 20 years. Is this a true statement?
Silver Spring, MD
A: If it were true that people should only retire if they have 20 years of their current gross salary saved (I’m assuming the myth doesn’t refer to net pay), a lot of people would never have enough to retire.
How about you look at it another way. You need to first figure out how much you need to live on in retirement. Is it $20,000 a year, $50,000? In other words, look at the expenses you expect to have to determine how much you will need.
In determining the retirement income you should take into account, savings, pensions, investments and Social Security. And, of course, there is inflation to think about. With all this information, you can calculate if you have enough to retire.
Before doing the calculation, you’ll have to gather up some documents. Get your last Social Security statement that indicates how much you can expect in benefits.
I need to give you a word of caution before you use the retirement calculator. Don’t panic when you see what you should have or need to have. It’s just that – an estimation. You can make changes that will help you retire comfortably. For example, you could work longer so you can save more. If you pay off your mortgage (if you have one) before you retire, that would for most people eliminate 20 percent to 40 percent of their expenses in retirement.
Most importantly, before you quit your job and retire, run the numbers. Don’t just guess at what you need. Know what you need.