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The “Real” Number


Ever since Lou Eisenberg wrote The Number in 2006, those thinking about retirement have focused on the one big magic number that will take care of them the rest of their lives.  How big a “nest-egg” is big enough?  Unfortunately that number is income-focused.  You don’t know if any number is big enough, if you don’t really know your expenses.  Your nest-egg is big enough only if it covers expenses, but do you REALLY know your expenses?  If you have gotten through life without one, don’t try to get through retirement without one.

Do two budgets – one for your current standard of living and one for a bare minimum living standard – one for a strong economy and one for a depression.  Yes, you can live without a big fancy house, I promise!

While many pundits suggest your cost of living will decrease 20-25% when you retire, don’t believe it!  My experience suggests it is only 5-10% at most, but every case is different, of course.

Budget for annual increases for out-of-pocket medical expenses, especially long-term care expenses.  Make an assumption you will need long-term care at the same age your parents did, but not later than age 85.

Allow 10% each year for contingencies.  The things you can’t predict far exceed the things you can predict.

If you cannot use Excel on your laptop, you can buy cheap budgeting software at Walmart, Target or most any office supply store.  No software is no excuse.

Get a calendar now and pick a date to do the first draft of your retirement budget.  Seriously, put that date on your calendar now.

Lastly, put your left hand on your Bible/Torah/Koran, raise your right hand, and swear you will update your budget every year of retirement – yes, you’ll have time.

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