I know -- you've heard it before. 10 times pay, 15 times pay, some other number times pay. But, last Friday, I heard a different answer. Suppose you look at things based on health factors. You've probably thought about that, but I don't think you have thought about it the way this gentleman has (I am going to deviate from what he said, but am using his basic premise).
Suppose we break the population into 4 quadrants. On the vertical axis, put your estimated health care costs compared to a typical person without regard to life expectancy. On the horizontal axis, put your life expectancy based on your family history and your health. I realize that you can't be exact, but you have a pretty good idea if you expect to outlive the norm or not.
When we look at the center of the chart (average life expectancy, average health care costs), perhaps you will need 16 times final pay to live happily in retirement. Consider the other four quadrants (using map directions):
- Northeast -- long life with high medical expenses requires high multiple
- Southeast -- long life with low medical expenses requires medium multiple
- Northwest -- short life with high medical expenses requires medium multiple
- Southwest -- short life with low medical expenses requires low multiple
It's so simple, yet so elegant. And, I've never seen it put this way before.
The particular individual cited in this article is doing research. He plans to release a publication with tremendous detail on this topic. Saying much more would steal his thunder, but it was such an interesting yet simple concept that I felt the need to say something.