What I most love about math is that it’s both predictable and precise! Insert the variables into the equation, and you can always find “X.”
Take retirement planning, for example. There are numerous financial-planning tools online which can help define a savings goal as well as predict how long one’s money will last based on various market returns. Determine your retirement budget and your desired age to leave the workforce, and software will calculate how much you must save each year to reach your goal. Voila!
If retirement planning were a simple mathematical formula, the unpredictable factor in the equation would be one’s longevity. Although both the IRS and the Social Security Administration employ actuaries to update and annually predict the average life span, variables such as family health history and parents’ age at death impact the equation.
But retirement planning isn’t a simple mathematical formula. In addition to family history, the equation is further complicated by one’s lifestyle. Variables include diet, exercise, attitude, activities, social connections, and unexpected cash demands, to name a few. Try plugging those factors into an equation!
“How much is enough?” in retirement is also affected by the rate at which cash is withdrawn from a retirement account. Observing the well-documented “4% Rule” regarding withdrawals suggests that funds will last some thirty years. And, according to calculations by financial guru, Dr. Doug Carlsen, retiring debt-free enables a person to enjoy a desirable lifestyle on only 60% of one’s pre-retirement income.
Finally, the decision to apply for Social Security benefits is fraught with variables and must be made with careful analysis as every individual’s situation is unique. Delaying benefits until reaching one’s full retirement age, however, has certain advantages that cannot be overlooked.
In the end, the simplest formula to plan for retirement is, “How much do you have?” divided by “How long will you live?” Good luck with the math!
“The best thing about the future is that it comes only one day at a time.”