Wondering, “How much do I need to retire?” Well, when do you want to retire? At 55, 60, 75 or older? What would you like to do when you retire? Travel, move to another country, or maybe even set up a business of some sort to help bring in some money and keep you active in your later years? Knowing what you’d like to do during your retirement will enable you to put an actionable plan into place and to know how much you need to put away to make your goal a reality.
How Much Do I Need to Retire, Really?
The million dollar figure is one that gets bantered about in social media and various articles as being the amount everyone needs to save. The reality is that there’s no one-size fits all amount when it comes to retirement planning. If you think about it, that makes a lot of sense. If your plan is to buy a modest home near the beach in Mexico, a million may be more than you need. If you have visions of yachting around the world, a million dollars probably isn’t enough.
So how much you’ll need in order to retire the way you want to retire depends on a number of highly personalized factors, ranging from your financial situation to your unique goals, to the fact that most Americans are living longer than ever. Add to that, the likelihood that Social Security may be a thing of the past by the time most Generation X’ers and Millennials reach retirement age, and you’ll have a firm grasp of where things stand.
The Income Guesstimate
Despite the challenges, it is possible to adequately plan for retirement. What’s one of the biggest factors in determining your retirement goals, according to many financial advisors? Your income. Experts recommend basing your retirement savings goals on an 80 percent replacement rate on your current income plus an annual increase for inflation (current average is 3.22%). In other words, if you make $100,000 a year, your retirement portfolio will need to generate $80,000 in income annually with an inflation adjustment factored in. Mind you, this figure might not be appropriate for you if, as discussed at the beginning of this article, you plan on becoming an expat in South America or want to take to the seas in your later years.
Given vast differences in income and goals, it follows that a sizable gap exists in terms of what different people may end up needing. Consider a recent survey by the Employee Benefits Research Institute indicating that while roughly 10% of today’s workers think $1.5 million will see them through a comfortable retirement, 20% place the figure between $250,000 and $499,999.
When it comes to answering the oft-asked question, “How much do I need to retire?” others argue that income is less important than it’s made out to be. According to certified financial planner Elizabeth Grahsl as reported by CNBC, “The only thing that matters is your expected expenses in retirement.” Of course, these also vary, and can be influenced by everything from your spending patterns to whether or not your home is paid off.
Luckily, a number of resources are available to help you understand your unique financial picture. Retirement savings calculators from Kiplinger, CNN, AARP, and MSN are just a few of the money management tools useful resources designed to help you get—and stay—on track.
One last thing to keep in mind? Coming up with an initial retirement plan is only part of the process. Also essential? Evaluating that plan on an ongoing basis. Changes in factors ranging from your employment situation to the economic climate can vastly impact your portfolio’s outlook. Routine check-ins can help you determine whether you’re still in good shape or if corrective action is necessary.
Need to do the math on other financial matters? Check out the free financial calculators and tools at Loanry.com