The Problem with Your 'Magic' Retirement Number
Calculating how much to save for a secure retirement has one major flaw: To do the math, you have to rely on averages. The problem? You aren’t average.


It is fashionable in the community of retirement advice-givers to talk about your “magic number” for retirement. That’s the amount of money you should accumulate by the time you retire so that your savings will last the rest of your life, or some fixed period, like your projected life expectancy.
This magic number is based on a number of assumptions, including your achieving certain average investment results over the long term. And perhaps that will work out. The stock market in which your savings are invested might hit the average return of the past several decades. And you might not live longer than average.
Planning for averages
Or maybe it won’t work. It is disconcerting to plan for “average” when you realize how average might work to your disadvantage.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Take this example: A small pond could average 3 feet in depth. You might plan to walk from one side to the other. You enter the water at the sandy beach, where the depth averages just a few inches. You take several steps toward the center of the pond with no problem. In fact, you can walk for another several yards without the water level rising to your knees. Then, the bottom starts to drop away. You find that as you approach the center of the pond, it is much deeper than 3 feet there, and as you keep walking you will be in over your head.
If you are wearing a flotation device, or you are confident in your swimming skills, you will make it to the other shore. Otherwise, in this pond of 3 feet average depth, you could drown.
Add guaranteed lifetime income to your retirement
Your goal, as always, is to develop enough income in retirement so that you don’t outlive your money. It is fine to put some of your savings into the market, with the hope that averages will climb higher than they have been for the past few years. If you develop a plan to create guaranteed lifetime income with a portion of your money, however, you may not have to depend on the market.
Social Security and pensions are the main sources of guaranteed income for many retirees. The other main way to create another source of guaranteed monthly payments is with the purchase of income annuities, which shift the risk of living beyond your average life expectancy, or the risk of below-market returns, to the insurance company backing the annuity.
Income annuities allow you to plan for all the stages of retirement: Early retirement, when you are looking to travel, babysit the grandkids and volunteer, followed by later in retirement when you might anticipate increased medical expenses and wish to stay in your home and avoid becoming a burden on your children.
To avoid the equivalent of drowning during retirement, forget the magic number based on averages. Instead, take control of your future by determining what income your savings will produce. That requires creating a guaranteed lifetime income strategy — your flotation device — unique to you.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.
-
How Your Social Security Check Changes at Ages 62, 65, 66, 67 and 70
The longer you wait, the bigger your Social Security check. We break it down by the most common ages when people claim their benefits.
-
Lock or Float? How to Decide on Your Mortgage Rate
Mortgage rates move daily, here’s how to know if you should lock in a rate now or let it float until closing.
-
10 Ways to Stay Safe From Grandparent Scams and Other Fraud, Courtesy of a Financial Planner
Scams are increasingly hard to detect, and anyone can be fooled, from older people to educated professionals. Here are 10 ways to avoid becoming a victim.
-
This Is How the Student Loan Bubble Is Primed to Pop, From a Student Funding Expert
Fueled by easy money, inflated tuition and high default rates, the student loan bubble mirrors the 2008 subprime mortgage crisis. We could be headed for a potential financial collapse. What can we do?
-
More Than Money: The Hidden Toll of Financial Abuse of Older Adults
Financial abuse from schemes involving tech support, government impostors, false sweepstakes, grandchild hoaxes and online shopping issues can cause thousands of dollars in losses.
-
I'm a Financial Planner: Here Are Three High-Impact Ways to Make a Difference With Your Dollars
The world often feels out of control, but here are three ways to use your money — through investments, charitable giving and political donations — to help create a more just and sustainable future.
-
The Unsung Hero of Aisle 5: A Tale of Forgotten Change and Compassion at the Supermarket
This supermarket manager went above and beyond to help when a child forgot her change at the checkout counter. You might be surprised at some of the complications that supermarkets face when it comes to customers' forgotten change.
-
Train, Integrate, Retain: A Strategic Playbook for Adviser Onboardings
Build a thriving practice by training new advisers with clear goals, structured processes and consistent mentorship for strong team growth.
-
I'm a Financial Professional: Here Are Four Ways You Can Use Debt to Build Wealth
Using debt strategically, such as for homeownership, education and more, can lead to greater financial stability and growth.
-
Five Key Wake-Up Calls for Ambitious Business Owners, From a Biz Specialist
Your personal financial plan needs to include a formal exit strategy for your business, or you could be in trouble.