retirement cost

You probably think of your own home as your largest expense in life. Perhaps your kids, if you think of them as expenses.

A recent study, in fact, estimated that buying a house and raising a child cost about the same — $245,300 for the house and $278,300 to raise a child from birth to age 18.

How does that compare to the cost of retirement?

Quitting work costs three times more, believe it or not. The average retirement in the United States runs $738,400.

That feels like a made-up number, as precise as it might appear. Naturally, what you will personally need is anybody’s guess, but let’s go with that rough figure.

The presumption behind this number is that you will receive some support from Social Security. That won’t be enough to live comfortably, so the difference must be made up in pensions and private savings.

Simple math here: $750,000 earning 4% creates an annual income of $30,000. Add the average Social Security income of $16,000 and you get $46,000 a year to live on.

The Bureau of Labor Statistics puts the cost of living in the United States at $20,000 per person. For a couple, the $46,000 figure minus taxes turns out to be just about right.

There is a veritable truckload of caveats here, such as what happens to people who live in high-cost areas (they move) and those who encounter unexpected healthcare costs.

Truths about investing

But let’s not put the cart before the horse. If you have $738,000 saved up right now, your retirement is in reach, broadly speaking.

Most people don’t. And that’s where your investment decisions today can really make a difference. To help, here are some truths about investing to keep top of mind.

Time is money. Most investors are not well served by trying to guess which way any given stock or fund might go. Getting in and out of the stock market is very hard to do. Some would say it’s impossible.

Rather, it’s time in the market, doubling your money through compounding, that makes a balance grow dramatically. You should have a prudently invested portfolio spread among different types of assets, one which rebalances to keep you on track.

Risk is important. Many investors go to unnecessary extremes. They often are underinvested when young and can withstand a market drop, then they take big risks as they get older and start to believe that they can outguess the mass of investors we call “the market.”

That strategy might work out. But it can get just as easily wipe out the vast majority of your savings — with no do-over. Getting into a portfolio that is risk-adjusted to your actual, personal goals is hugely important, as is adjusting that risk as you age.

Low cost matters. So what can you control? Two things: How much you save (more is better) and how much you pay for investments and financial advice.

A savings rate of 15% is a good starting point for discussions with an adviser, certainly more if you can manage it. As for investment costs, low-cost index funds will bring you a diversified, predictable return year after year.

In fact, just by indexing you’ll beat the vast majority of professional, active investors.

If you’re getting close to retirement age and your number is off by a digit, that’s when a conversation with a financial adviser makes a difference. A complex financial life can become simplified in just a few conversations.

Make sure, however, to hire a fiduciary, someone who is required by law to act in your best interest first. Your plan cannot, and should not, serve two masters.

As always, fortune favors those who plan and plan well.

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