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Retirement planning to age 100

By Barbara Whelehan ·
Friday, October 28, 2011
Posted: 4 pm ET

You've seen the advertisement where people are walking down a city street carrying their "number" under their arms. It's a large and somewhat cumbersome six- or seven-digit savings goal for each bearer's retirement.

ING has a calculator on its website that enables you to figure out your wealth accumulation target by plugging in five numbers, beginning with your age, at

For instance, let's imagine you're 50 years old, your household income is $80,000, and you expect to retire at age 65 and live to age 100: What's your number if you need an annual income of $40,000 a year or half your annual salary? The answer, according to the ING calculator: $1,602,736.

Why plan to live to 100? It's better to assume you'll live to a ripe old age than to run out of money early.

A different approach

Having a savings goal is never a bad idea. But it may not be the best way to approach retirement planning, says Wade D. Pfau, Ph.D., an associate professor at the National Graduate Institute for Policy Studies in Tokyo.

In the current issue of the Journal of Financial Planning, Pfau argues that the stock market can throw off the best laid plans, thanks to its volatile nature. We know all about wild fluctuations in returns from firsthand experience. The good news is that decades with lousy market returns are generally not immediately repeated due to a reversion to the mean. Lousy stock markets generally recover.

Looking at historical market returns over rolling 30-year periods, Pfau says, "A progress report (showing how much you saved) from 10 years before retirement would provide almost no information about the final wealth accumulation."

When financial planners talk about the magic of compounding, most of the so-called magic is supposed to occur in the last 10 years or so just before retirement. Using the "rule of 72," if you earn an average of 7 percent a year, your money doubles roughly every 10 years. So theoretically, if you have $500,000 saved up at age 50, you'll have a million bucks by age 60 in this scenario.

But what if the last 10 years of our careers are marred by one or two bear markets, like, say, those that occurred over the last decade? Someone's portfolio could be decimated just in time for retirement.

"The specific returns earned in the final few years before retirement play a disproportionate role in determining the final accumulated wealth," Pfau says.

Rather than focus on a wealth accumulation target, Pfau examines historical market returns to arrive at a safe retirement age combined with varying savings rates and income-replacement needs. It's based on how much you have accumulated by a certain age as a multiple of your salary.

For example, what's the safe retirement age for a 50-year-old who has saved up four times her annual salary and who will need to replace 50 percent of her pre-retirement income? Pfau assumes she will live to 100, and her portfolio invests 60 percent in an S&P 500 fund and 40 percent in fixed income assets.

The table below shows at what age she can safely retire at the various savings rates. If she is saving 15 percent of her income, she can safely retire at age 66. If she saves 20 percent of her income, she can retire a year earlier.

Notice that a person who has accumulated nothing by age 50 will have to work as long as he lives. Likewise, a person who has already accumulated 10 times his salary can safely retire by age 58.

If you think you might be able to live on less than 50 percent of your income, or conversely you'll need to live on more than that, Table B shows the safe retirement age at different income replacement rates, assuming a 15 percent savings rate and the same 60 percent stock allocation to your portfolio.

If you don't have anything saved up yet, you can replace 30 percent of your income by saving 15 percent of your current income for the next 23 years, retiring by age 73. But if you already have 14 times your annual salary saved up, heck, you can retire today knowing you can replace 40 percent of your current income.

These numbers are an alternate way to figure out your retirement planning needs and take into consideration some very erratic market returns of the past. They also serve as a wake-up call for those who want a realistic idea of how much it will take to fund a retirement that may last for several decades.


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Barbara Whelehan
October 29, 2011 at 11:58 am

Hi Wade,

Thanks for your important research, and for your comment. You make a good point. Michael Kitces is one of the smartest financial planners I've ever had the pleasure to interview over the years. It's amazing that everyone in the financial community took for granted the effects of compounding throughout the accumulation phase of retirement, but I believe you're right in saying that Kitces was the first to observe that this "gold standard advice for retirement planning" is "far more speculative than we have ever acknowledged."

Sharon McGinty -- No one is going to take down your comment. Your experience with Social Security is a bit unnerving and worth investigating further. Thanks for writing.

Sharon McGinty
October 29, 2011 at 11:03 am

Read this before they take it down. Noone is telling the actual truth about how they figure the social security you get. Basically, the longer you wait to collect, the less you get! They are not sharing the little known secret about the "changing index" for calculations. I received my yearly estimate in 3/2011 but when I applied to actually receive my social security benefit in 5/2011, the amount had dropped by $30.00/month!!! Reason given was because of the changing economy. They need to continue lowering the amount they award to beneficiaries. So, my advice is, don't WAIT-- start collecting whenever you can.

Wade Pfau
October 29, 2011 at 12:43 am


Thanks for the excellent write-up about my research.

About the issue of how the magic of compounding can fall apart just before retirement, Michael Kitces deserves a lot of credit for that point.

Best wishes, Wade