So if I multiply the estimated cost ($13.63) by the approximate yearly income needed to buy coffee ($711.75), I find the annual income I need to buy my daily coffee in retirement would cost an estimated $9,701 today. (The figures provided here are for illustrative purposes only, assume no other variables, and are subject to change over time.)
This “translation” helps in two ways. First, estimating the cost of retirement income (by using CoRI or some other method) helps you estimate the future income your savings may produce, and that in turn lets you measure your estimated income against your projected retirement living expenses. That exercise helps you look at your retirement readiness in much the same way you measure your current spending against your paycheck.
The second way it helps is that you start to think about retirement income (from whatever source) as a “cost”, something you “buy”. And that may change how you think about retirement saving. Rather than putting money aside and hoping it is enough, you can now think of saving as buying something today that you will use tomorrow. And that subtle shift can help you set savings goals based on the income you think you’ll need in retirement.
Chip Castille, Managing Director, is head of the BlackRock US Retirement Group. You can find more of his posts here.
The CoRI tool does not guarantee future income or protect against loss of principal. Although the CoRI tool provides an estimate of the amount of money you need today for every dollar of annual income you want in retirement, this estimate is not a guarantee. A number of factors may contribute to variations in retirement income.