How Much Money Do You Really Need to Save for Retirement
So, do you have your $1 million dollars socked away, yet?
That’s the “magic number” many financial experts quote as the amount of money needed for retirement. Others suggest $2 million or 10 times your salary.
For a more individual approach, you can utilize any number of websites (Kiplinger and CNN Money to name two) that have calculating tools. These guides help you project how much money you’ll need to live on as well as save pre-retirement. But they provide only an overview or best guess. For example, they’ll ask your current income and the age at which you’ll retire. Easy enough. They also ask how long you expect to live. Not so easy. And there’s no “gray area” to factor in any future health problems.
However, it is a place to start: You get an idea for a savings plan and there is comfort in seeing the actual numbers. But, like most of life’s large issues, there’s no one-size-fits-all.
What Does Your Retirement Look Like?
When you think of your retirement, what comes to mind? The image of twin rocking chairs on an open porch facing a lake? World travel? Unlimited time with your grandchildren?
My brother “retired” about nine years ago, after working as a school district superintendent for a number of years. However he was often recruited to act as a consultant for other area school districts to advise on administrative matters. That went on for about seven years – the money was good, he enjoyed it, and it wasn’t full-time.
Many people opt to keep working after they leave their full-time position, just to stay busy and connected with colleagues. The change in status from full-time to part-time or temporary frees you up from the daily grind and gives you a small income.
If you’re looking to retire completely, you’ll need direction from a professional financial planner. That person can take into account your dreams, your goals, your money matters. It might as well be that you’ll need a million dollars (or two) in order to have the kind of retirement you’re dreaming of. But at least you’ll know to make that happen.
What Does Your Now Look Like?
Sure your work life takes up a significant amount of your day time (or night time), but take a moment and think about what you like to do now: Are you a big sports fan and attend a few games each season to cheer on your team? Do you like the opera or symphony? Once you’re retired you’ll certainly have enough time to spend on those interests, but will you have the money? Considering too, that you may not be drawing the same kind of income.
If you don’t have a budget now, you’ll need to start. Figure out how you spend your money – not just on large purchases or special events, but where it goes, down to the last latte.
Also factor in how your expenses might change once your retired:
- Will your house be paid off?
- Will you downsize to a smaller home?
- Will you move to a more affordable city?
- Will you choose to have only one car (or none at all?)
The largest expense in anyone’s budget is living expenses – rent or mortgage, insurance, taxes, utilities. If your current situation will change significantly (e.g. you sell your home to buy a smaller one) there’s additional money for your retirement.
Also deducting the amount you spend on your commuting expenses, as well as money spend on childcare or tuition, can adjust your income 30 percent or more.
If you’re not planning to have such a financial boon, you might need 70 percent of your pre-retirement income to cover your expenses and lifestyle. Another estimate is 100 percent of your pre-retirement income for the first few years following retirement: You’ll be younger and more active than perhaps 10 or 15 years down the line.
It is also a good idea to research the amount of social security income you could receive www.ssa.gov.
As you begin to estimate your retirement income needs, don’t get discouraged or stressed. Your retirement plan is a work in progress and there are many ways you can achieve a comfortable lifestyle for your later years.