How Much Money Will You Need If You Live to 123?

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Carmelo Flores Laura, a retired cattle and sheep herder in Bolivia, made news in mid-August when some evidence surfaced that he may be the oldest person in the world, and the oldest person to have ever lived. He is believed to be 123.

Or not. Some reports have quoted gerontology experts casting serious doubt on the veracity of the documents showing Laura's age. (The experts state he is merely 107.) Nobody doubts, however, that the toothless Bolivian is old. He also isn't exactly living in the lap of luxury. As he presumably has his entire life, according to the Associated Press, Laura lives in a hut with a straw roof and a dirt floor.

Arguably, plenty of Americans worry about someday being old and forced to live in similar conditions. In 2010, a memorable poll by Allianz Life Insurance Company of North America stated that 61 percent of Americans were more fearful of their money running out than of dying.

So for those of us who would like to live to 123 or some other ridiculously high number, and still have ample income, some personal finance experts suggest the following.

Start saving and investing young. Obvious advice, but it has to be said. The younger you start putting money away for your retirement, the more time you have to pile it up. But you know that, so we'll move on.

[Read: How to Calculate Your Retirement Number.]

Figure out what your yearly income should be when you retire. Also obvious, but it also has to be said.

"There are many factors that impact this calculation, such as lifestyle, culture and cost of living," says Brian Porter, a professor of management at Hope College in Holland, Mich., who specializes in accounting and finance. "A general consensus is that, once retired, an American investor should withdraw no more than 4 percent or 5 percent from retirement savings each year. For example, if an investor anticipates needing $100,000 per year -- not a large amount, considering inflation -- during retirement, the investor needs to save over $2 million."

Speaking of which: Remember inflation. That is, when you're investing for your retirement, you really need to factor that in.

"Your investment portfolio shouldn't just include stocks and bonds, but real assets, including real estate, commodities and certain hedged strategies," says Allan Flader, a financial advisor with RBC Wealth Management, a financial advisory firm for the affluent and high-net-worth, headquartered in Phoenix. Having some assets that are inflation-adjusted is a must, Flader says. "Otherwise, inflation can kill you."

No kidding. Porter has done the math."An individual who is 22 years of age, planning to retire at 67 -- 45 years in the future -- will face an average price increase by 378 percent, assuming an annual inflation rate of 3 percent," Porter says. "If the person lives until 90 -- 68 years in the future -- prices will be 746 percent greater."

[Read: 5 Ways to Avoid Outliving Your Retirement Savings.]

And if this hypothetical 22-year-old makes it to 123? Porter says average prices will be 1,980 percent greater.

More specifically and practically, Porter explains that if that 22-year-old lives on $40,000 a year in 2013 and wants an equivalent lifestyle in 45 years, he or she will be spending $151,264 a year by 2058 -- and $298,538 in annual income 68 years from now (in the year 2081). And if that 22-year-old does live to be 123 (the year 2114), he or she would need $791,808 per year.

Put another way, Porter says, the gallon of milk that costs $3.50 today (at least in some parts of the country) will -- if inflation continues increasing 3 percent every year -- cost $13.34 by 2058, when that 22-year-old is 67. And 101 years from now, that milk will conceivably cost $69.28.

Porter, in fact, helpfully offered this chart showing what a 22-year-old today will pay for milk, a night at a hotel, a dental cleaning and a dental crown. (Porter created this shortly after going to the dentist and learning he needed a crown.)

AgeYears in FutureMilkHotelDental CleaningDental Crown
220 (today)$3.50$90$125$910
6745$13.23$340$473$3,441
9068$26.12$672$933$6,792
123101$69.28$1,782$2,474$18,014

Even if inflation doesn't rise 3 percent every year, or hotel costs are offset by no longer needing to pay for airfare because teleportation is so much cheaper, Porter's point is the same: The world we live in tomorrow will be more expensive than the world we live in today.

Your retirement plan needs to be flexible. You hear that a lot from financial advisors. The reason is that even if we don't have hovercraft skateboards and space buses to Mars in the near or distant future, the financial products available at age 123 will certainly look markedly different than they do now.

"Whether the time frame in which you're retired is 30 or 60 years, things will change," says Dan Danford, CEO of the Family Investment Center, a commission-free investment firm in St. Joseph, Mo. "Retirees need to maintain enough flexibility to adjust when they do. Inflation-adjusted bonds are one good example. They didn't even exist when my father retired in the mid-1980s. Exchange-traded funds are another example. What other helpful new products will come along before 2043? Without flexibility, how can you include new products when they do come along?"

You need to be flexible, too. If you're going to live off 4 or 5 percent of your nest egg annually, ideally you will have plenty of cushion built in, so you can only take, say, 3 percent if you need to. That's because your retirement fund needs to be robust enough to withstand the Great Recession of 2039 or the Great Depression of 2051 or whatever the economy dishes out.

"Try to cut back in the down years to make your money last," Flader advises.

Of course, it's impossible to offer up an actual number on what someone needs for their retirement. Some people are better at living on less than others.

[See: 10 Target-Date Funds Producing High-Grade Nest Eggs.]

But if you really want a number, Porter says that if you were to retire right now at age 65 and want to fund retirement until age 123, you will need $2,291,262 in the bank, assuming your nest egg will earn 3 percent annually. If our hypothetical 22-year-old retired today, he or she would need $3.9 million to reach the same goal.

"These amounts could be reduced if the individual is receiving Social Security or a pension," Porter points out. "In my opinion, though, it's best not to plan on Social Security, and the majority of workers don't have defined benefit pensions."

Porter provided another chart that shows what you need in the bank if you live to 123 and retire at age 22 (unlikely, but, hey, if you can), 45 (again, kudos if you can swing it) and the more traditional 65. The calculations assume an annual inflation rate of 3 percent, and that you can live on $40,000 a year in retirement. He lists the amounts you'll need to save if your nest egg earns 3 percent, 5 percent and 7 percent in annual interest.

Retirement AgeYears Until age 123Money You Would Need Earning:
  3%5%7%
22101$3,961,165$1,718,733$979,476
4578$3,067,961$1,562,260$950,703
6558$2,291,262$1,356,931$894,378

But whatever amount of money you hope to have on hand for retirement, you may want more than you think you will. Consider that just last week, USA Today ran an article about Floyd Pullin, of Confluence, Pa., a 102-year-old who purchased a new Ford pickup truck. It doesn't take much imagination to assume that saving for a retirement that lasts into the 120s may someday become the norm.



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