Q: How much savings should an 83 year old have?
A: So much discussion about retirement planning focuses on calculating savings for retirement, but it is just as important to manage your resources carefully after you stop working full time.
Unfortunately, a lot of retirement commentary tends to give one-size-fits all or formulaic responses to questions about how much retirement savings a person should have at a given age, but the truth is that the right answer depends very much on each individual's needs and circumstances.
How to determine your retirement savings needs
To determine your retirement savings needs, the first step is to identify the factors that can impact how much you money you'll need. Then you can decide whether you feel comfortable calculating the extent to which your retirement savings are sufficient to meet these needs, or if you need to consult a financial planning professional to help you.
1. Determine current and future spending
First, work out your current rate of spending. You can eliminate items that are unlikely to reoccur; but other than that, figure out how much you are generally spending each year.
Once you have that figure, think ahead to anything that might meaningfully change your annual spending. This might include a vacation or a significant purchase that you are planning, or it might include a lifestyle change such as downsizing or moving to a senior living facility.
2. Identify income and assets beyond retirement savings
On the other side of the ledger are any income or assets that are not included in your retirement savings.
For example, you probably have social security income that offsets some of your expenses; and if you have a defined benefit pension or still earn employment income, these could further offset your spending. The net of your expenses minus any regular income is the figure you'll need to finance from retirement savings and other assets or investments tailored to retirement.
As for other assets, a common example is if you own a house. A trade-off that may happen later in retirement is potentially selling your home to move into an adult living facility. While your monthly expenses would probably rise in that event, you may also have the net proceeds from the house sale to help finance those expenses.
3. Factor in projected life span and other retirement-planning considerations
Once you know the net amount of expenses you have each year over and above income, you can start to figure out how much retirement savings would be necessary to cover that amount in the years ahead. The tricky part is that there is no way to know how many years of net expenses you need to cover.
According to the U.S. Centers for Disease Control and Prevention, the average 83-year-old can expect to live for another 7.6 years (slightly more for women and less for men).
At minimum, you could multiply your annual net expenses by 7.6 and say that's how much retirement savings you should have at your age. Remember though, you may live longer than average, so it may be best to tack a few years onto this calculation as a safety cushion.
Another consideration is if you would like to leave anything behind to your heirs, charity or other causes. If so, you should add that additional amount to how much retirement savings you should have at this point, to increase the chances that there will be something left over after all your needs are met.
Finally, if you have not done so already you might consider setting up a burial trust. This can help ensure there is sufficient money set aside to cover your final arrangements.
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