When we think about financial planning, we usually think about money, right? Of course money plays a big part in your financial planning, but we also need to consider what lifestyle we are going to live and how long are we going to need income. In other words, are you going to live an expensive lifestyle; and how long are you going to live?
My wife and I have dreams to travel when we leave the workforce. Those plans are well in the future and many factors can change between now and then. However, if those are our plans, we need to structure our financial plans to reflect a more expensive lifestyle in the future. The same is true for less expensive lifestyles.
Across the financial planning industry, there are many different thoughts on how much you will need to sustain yourself when you leave the workforce. One solid way of planning alongside your LAGERS benefit is replacement of income. If you utilize the replacement method, a good number to shoot for is 80%. Of course, if your lifestyle in retirement is more expensive, you might want to think about increasing that percentage.
The best part about using this income replacement method is you can easily determine what you will receive from LAGERS at eligibility. You will take your employer’s multiplier and multiply it by the number of years you plan to work. For example, if you have the 1.5% multiplier and plan to work 25 years (1.50% x 25), you will receive 37.5% of your average pre-retirement salary for life from LAGERS. The remainder of your replacement goal needs to be filled in by other sources of income including personal savings and Social Security.
How Long Will I Need the Money?
Do you know how long you’re going to live? Right, nobody does. It would make your retirement planning process much easier if you knew exactly how many years of income you are going to need before you pass away. However, you can make an educated guess if you’re honest with yourself about your health, family history, and lifestyle.
As a LAGERS member, not only can you easily calculate your benefit, you can have peace of mind knowing that your LAGERS benefit will pay you for life. There is no outliving the benefit. So, whether or not you live 20 years or 40 years into retirement, your LAGERS benefit will be there for you!
However, with your personal savings, it is important to be able to have an idea of how long you think you’re going to live. Of course, there isn’t a single tool that can tell you exactly how long you’re going to live, but there are some tools out there that can help you understand the factors that drive life expectancy. One of my favorites is the Living to 100 Life Expectancy Calculator. It requires you to answer a thorough set of questions about your lifestyle, health, and family history. In my opinion, the best part about this calculator is the report at the end that shows you ways to improve your life expectancy with some lifestyle changes.
Either way, financial planning can be overwhelming. As a LAGERS members, there is one piece of your puzzle you can easily calculate how much you will get and you know it will last your lifetime. Hopefully because of your LAGERS benefit, you are able to reach your next chapter with a little security and peace of mind.