By: Colleen Weber
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By Colleen Weber, CFP®, CPA
It’s impossible to retire comfortably without years of strategic planning. And a key piece of that planning includes figuring out how much money you’ll need to live as you age. No matter your lifestyle or circumstance, you want to be confident you’ll have enough money to last through retirement. Unfortunately, there’s no magic number to save or invest as it’s different for everyone.
Let these questions be your guide as you figure out how much money you need for the retirement you’re dreaming of and working toward.
When Do You Want to Retire?
Your age (now and in retirement) is one of the most significant factors to consider when determining how much money you need to save. If you want to retire early, you’ll have fewer years to save for a longer retirement. And, if you start claiming Social Security benefits before full retirement age, you’ll also have to factor in a smaller monthly benefit amount.
The state of the stock market can also play a role in how much money you need and how long your money lasts. A Vanguard study found that you have a 31% higher chance of running out of money if you retire during a bear market. (1) Of course, you have no way of knowing if we’ll be in a bear or bull market when you retire—but this is a scenario you must account for in your retirement planning.
What Do You Want Your Life to Look Like?
Have you thought about the type of lifestyle you want to have in retirement? If you know you want to travel, play golf, or spend time with your grandkids, have you thought about what that looks like for you and how much it will cost?
For example, if you plan to travel, you’ll need to consider:
- Will you be traveling stateside or internationally?
- How often do you want to travel?
- How would you like to get there? (e.g., car, plane, or RV)
- Where would you like to stay? (e.g., 5-star hotel, Airbnb, or with family members)
- Will you be traveling with your family? Would you like to cover their expenses too?
- Will you maintain your primary residence? And, if so, who will watch your house and maintain it while you’re gone?
Even if your dream is simply to spend time with your grandkids, you’ll still need to think through your expectations and expenses. To some people, “spending time with your grandkids” means babysitting a few times a week. To others, it means footing the bill for all-expenses-paid trips to various destinations of their choosing. Whatever it is you want to do with your time, map out the details so you can have a clear picture of how much you’ll need to make it a reality.
Will You Earn an Income in Retirement?
Working during your retirement is a great way to stay active, keep your mind sharp, and maintain a sense of purpose. Some retirees choose to build a second career through consulting. Others decide to pick up a low-stress, part-time job at a family office or retail store. No matter what you do, if you plan to work during retirement, you won’t have to save as much to live comfortably.
How Much Debt Do You Carry?
Bringing debt into retirement has two major drawbacks:
- It reduces the amount of cash flow you have for housing, travel, hobbies, and other non-essential purchases.
- It drains your retirement savings quicker, which means you may run out of money or have to adjust your lifestyle down the road.
If you carry debt, take a close look at what you owe and figure out how much cash flow you’ll need in retirement to cover these expenses. Some people prefer to pay off any high-interest consumer debt before they retire. Others will take it one step further by paying down their mortgage and auto loans, too.
What Kind of Healthcare Coverage Do You Expect to Have?
Right now, you most likely have health insurance through your employer. When you stop working, you’ll need to secure healthcare coverage another way. You may be able to hop on your spouse’s plan, if he or she is still working. Or you can get coverage through the healthcare marketplace. You’ll qualify for Medicare starting at age 65, but even then you may want additional coverage to pay for prescription drugs, dental care, eye exams, and other expenses.
Retirees sometimes fail to fully plan for expenses during the later stages of retirement, and medical care often tops the list. Various studies have estimated healthcare costs after age 65 ranging from $169,000 to $404,253 per couple. (2) Don’t let this be a planning oversight that prevents you from retiring comfortably!
Will You Have Any Dependents?
Your kids may be grown and out of the house by the time you retire, but that doesn’t necessarily mean you’ll stop supporting them financially. Almost 80% of parents said they still give financial support to their adult children (ages 18 to 34), according to a Merrill Lynch study. (3)
And, even if you aren’t helping your kids out with daily expenses, you may want to contribute to their weddings or down payments on home purchases down the road.
Where Will You Live?
Housing may be your biggest expense in retirement. And even if your home is paid off, you might want to consider downsizing to a smaller place that requires less maintenance and has cheaper utility costs.
To save even more, you can think about relocating to an area that has an overall lower cost of living. For example, the cost of living in Chanhassen, Minnesota, is 21.4% higher than the national U.S. average. (4) But move just 13 miles east to Bloomington, Minnesota, and the cost of living is only 4.9% above the U.S. average. (5)
What Is Your Family’s Health History?
The average 65-year-old man has a 35% chance of living until age 90; that rate goes up to 46% for a woman the same age. (6) And, while life expectancy is unpredictable, if your family has a strong history of living to age 90 and beyond, your chances may be even greater than these odds. In this case, you’ll need to determine if your planned retirement savings will last long enough.
Similarly, if you have known health conditions and/or a family history of health problems that could affect your lifespan, you’ll want to consider this too.
How We Help
If only figuring out how much you need for a comfortable retirement were as simple as a one-and-done formula. On the contrary, it requires a deep dive into your financial situation, family history, and goals.
As an independent financial advisor and CERTIFIED FINANCIAL PLANNER™ professional with over 15 years of experience, I will work to understand your unique needs and inspire you to be more confident in your financial decisions—including figuring out how much you need to save for retirement. Outsource your anxieties to me; I’ll be in charge of protecting your wealth while you live within a personalized retirement plan.
If you’d like to partner with a financial planner who will help you find the right balance between enjoying life and protecting your nest egg, book a free introductory meeting online today!
Colleen Weber is a fee-only financial advisor, CERTIFIED FINANCIAL PLANNER™ professional, and CPA with more than 15 years of financial planning experience. Providing comprehensive financial planning and wealth management, she specializes in serving clients nearing retirement, retirees, busy professionals, and women. She is passionate about developing financial plans that save clients on taxes and investment strategies that help them pursue their goals. Learn more about Colleen by connecting with her on LinkedIn or booking a complimentary phone call meeting.
(3) https://blog.massmutual.com/post/parents-supporting-adult-children-the-good-and-bad#:~:text=Many%20 parents%20provided%20financial%20support%20to%20adult%20children&text=Seventy%2Dnine%20 percent%20of%20 parents,Lynch%20survey%20of%202%2C500%20 parents