Excerpts from Jonathan Clements Wall Street Journal
When will you have enough to retire? This is among the most basic personal financial questions. And, yes, the returns you earn and the size of your paycheck will have some bearing on the answer. But there are other issues that are just as critical and may be more so. As you try to figure out how much you will need for retirement and how long it will take you to amass that money, here are five other factors to consider.
Parents: Did your parents encourage you to save regularly and invest prudently or did they measure their worth in cars, clothes and fancy vacations? As you struggle to save enough for retirement, there is a good chance your money habits will mirror those of your parents.
Career: The bigger your paycheck the greater your ability to amass wealth. But just because you collect a hefty salary doesn’t mean you will retire early. Not only are you used to a higher standard of living, but also your Social Security retirement benefit will replicate a smaller portion of your pre-retirement income.
Result: You will need to save far more than folks who are used to living off a smaller paycheck.
House: Do you go for the big house or don’t you? Sure, if you own a larger home, you will get a greater benefit from any real-estate price appreciation. But opting for the big house is really a lifestyle choice, and it will cost you. You are locking yourself into hefty mortgage payments, maintenance cost, utilities, homeowner’s insurance and property taxes that will crimp your ability to save for retirement.
Health: If you exercise regularly, it might seem like you’re setting yourself up for a long and hence costly retirement. It is a little more complicated than that, however. Yes, if your family history and your own health suggest you will live to a ripe old age, you should save enough to carry yourself through 25 or 30 years of retirement, and maybe more. But, if you are overweight, never exercise or smoke a pack a day, you could still need a fair amount saved for retirement. True, your retirement may be relatively short, but it could prove mighty expensive. There’s an increased risk you will suffer a debilitating illness or struggle with your mobility, and thus you may get hit with long-term care cost — possibly the biggest expense that retirees face.
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