Retirement Finance

I noted in a previous essay that several friends and family members are retiring soon.  How are they financing their retirement?

Conventional wisdom is that retirees should have at least three sources of income (the “Three Legged Stool”) if possible.  Those three sources are:

  1. Social Security
  2. Personal savings (401k, IRA, etc.)
  3. Pension assets

But most people nowadays don’t have a pension, so they have to rely on only their savings plus Social Security.

If you haven’t done so yet, I suggest creating an account with Social Security (  Once you have an online account, you can obtain an annual statement, which includes a “Personalized Monthly Retirement Benefit Estimate”.  This estimate varies, depending on the age that you start collecting Social Security.

(By the way-if you can afford to do so, seek the help of a financial planner, accountant or attorney for retirement planning.  What I am sharing with you is my experience,  and may not be appropriate for your situation.)

Social Security payments increase every year that you wait to start collecting.  The earliest that you can collect is at age 62, and the latest is at age 70.  The monthly payment if you wait until 70 is almost twice what it is at age 62.  What this means is that if you can afford to wait until the age of 70, by the time you are 78, you will have collected the same amount in 8 years as you would have if you began collecting at age 62.  And every month after that is a bonus.

I do understand that some people (many people?) cannot wait until they are 70 to collect Social Security.  According to one article online, only 5% of men and 7% of women wait until the age of 70 to begin collecting Social Security.

Now what about personal savings?  Hopefully you have some savings in a tax-deferred account (401k, IRA or similar).  The earlier you can start saving and investing, the more time your money has a chance to grow.  (For more backround on saving and investing, check out my essays “Living Below Our Means”, “Financial Literacy” and Financial Wisdom Part II”.).

How much money do I need to retire?  How do I even answer that?  A good place to start is to figure out what my annual (or monthly) cost of living is.  Once I do that, I have an approximate idea of how much money I need to live on for 1 year.  Then I need to make an estimate about how long I am going to live.  A rough estimate for many Americans in 2022 is that we will live into our 90s.  So I estimate that if I retire at 65, I will need to finance my life for another 30 years.

Here is an example calculation:

Suppose I figure that my cost of living is $50,000/year, after taxes.  That probably requires an income (before taxes) of about $70,000/year.  So I need to accumulate ($70,000 x 30= $2,100,000).  However, if I receive a Social Security benefit of (approx.) $2,000/month ($24,000/year), that would reduce the amount of personal savings that I need by about 1/3.  So I might need about $1,400,000 in savings and the remainder will come from Social Security.

So what do I do if I don’t have that amount of money saved for retirement?  There aren’t a lot of choices available.  The best choice, if I am healthy and still employed, is to keep working so that I have to finance fewer years of retirement.  That approach has two advantages.  If I work until I am 70, I only have to finance 20-25 years of retirement.  Plus my Social Security benefit will be about twice as large as if I start collecting at age 62.  A second option (which isn’t so easy) is to reduce my cost of living.  But the reality is that if my only source of income is Social Security- that doesn’t pay very much.

I look forward to hearing from you.  Send me an email at


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