How much money will you need to save to finance a coffee habit in retirement?
The world's largest asset manager, BlackRock, has put a bit of thought into this all-important question and come up with what might be a jolting estimate: $10,163.79.
Actually, that figure assumes a few things, starting with the idea that you're 55 today.
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The company's CoRI Index – a retirement income calculator – looks at factors such as inflation, longevity, investment and interest rate risk.
Setting aside the tougher math, spending almost $2 a day on a cup of Joe comes to about $700 annually, meaning about $7,000 a decade or about $21,000 over a 30-year period, BlackRock said.
But that "lump sum" approach to estimating retirement costs doesn't factor unknowns like inflation, or how markets will be treating 401(k) values 10 years out, or which retirees will live to be 70, and which to 95.
By applying actuarial standards used by the Social Security Administration, the Society of Actuaries, and insurance companies, BlackRock's CoRI Index claims to help a pre-retiree estimate the income their current savings will generate in retirement.
In other words, the index can estimate how much you need today to generate $1 of income every year for as long as you live, beginning at age 65.
So, for every $1 in a retirement lasting 30 years, our 55-year-old planning to retire at 65 needs $14.28 today, according to the CoRI Index.
BlackRock then multiplies that $14.28 by the cost of a year of coffee, $711.75, to get to that $10,163.79 figure needed today to buy coffee every day over a three-decade-long retirement.
By the way, a 63-year-old with $500,000 in retirement savings (not including Social Security) will generate about $23,500 a year, according to the CoRI Index.
The National Institute on Retirement Security recently released data saying the average pre-retiree household, aged 55 to 64, has average retirement savings of $104,000.
For a 55-year-old, that will generate less than $6,000 in annual retirement income, probably too little to afford much coffee.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
