How to think about retirment [View all]
Interesting story in AARP Bulletin.
The writer says that we need to think about years that our saving will last, not the absolute number.
Two examples: Someone who is worth $1 million and whose lifestyle cost $200,000 a year. This person has only five years of freedom and security.
On the other hand, someone who is worth $200,000 and lives on $10,000 a year, has 20 years of financial independence.
He concludes that wealth has to be measured by time, not money alone.
He has a formula:
Start with net worth (assets less liabilities).
Estimate your annual expenses.
Calculate annual guaranteed income: pension plus social security benefits.
Subtract the guaranteed income from annual expenses. This is the additional annual needs.
Divide net worth by that amount needed and one gets wealth measured by years.
Interesting exercise.
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