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Family Inc. by Douglas P. McCormick

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CHAPTER 22

What’s Your Number? Determine When and How Much You Can Afford to Spend in Retirement

Uncertainty is a part of everyday life for all of us. Will it rain today? Will my car break down in the next 10,000 miles? How much will I make at my job this year? Next year? Will my spouse and I stay healthy? The questions cannot be answered with certainty. We know this, we accept it, and deal with the unknown as best we can. Unfortunately, when it comes to retirement, many of us are less accepting of uncertainty—we want to know today how much we can afford to spend for the rest of our lives! To get a sense of how ridiculous this expectation is, imagine asking your boss for a commitment today about how much you will make for the next 30 years. I suspect you’d be told it depends—on how you perform, how the company performs, the nature of the labor markets and inflation, and so forth. Bottom line: Your future salary will depend on a number of factors that can’t be determined today. The same can be said about your retirement spending.

In this chapter, we explore frameworks for retirement planning, including ways to estimate your retirement income and manage your finances in retirement by adjusting your plans with the benefit of new information about your investment returns and your spending needs. These are good tools. But recognize that while the decision to retire must be made at a particular time with the information on hand, good retirement management happens continually throughout ...

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