How Much Money Do I Need?
One of the biggest concerns I hear from clients when transitioning to retirement is, Will I have enough money to retire?
Fear of rising healthcare costs, loss of savings, market downturns, and living longer are a few of the important topics that we discuss when elvaluating your situation.
How much money do you need to retire?
A common guideline is that you should aim to replace 70% of your annual pre-retirement income. You can replace your pre-retirement income using a combination of savings, investments, Social Security and any other income sources (part-time work, a pension, rental income, etc.). The Social Security Administration website has a number of calculators to help you estimate your benefits. This is most likely your biggest asset for lifetime income.
It's important to consider how your expenses will change in retirement. Some, like health care and travel, are likely to increase. But many recurring expenditures could go down: You no longer need to dedicate a portion of your income to saving for retirement. You may have paid off your mortgage and other debts and loans. Your taxes are likely to be lower. If you know you won’t have a mortgage, for instance, maybe you plan to replace only 60%. If you want to travel every year, you might aim to replace 90% or even higher of pre-retirement income. Inflation in retirement is also essential to factor into your planning. Prices increase over time, and that decreases the purchasing power (value) of your money. This means the amount you have saved today likely won't go as far 20 to 30 years from now. While planning for your retirement there are so many variables and situations that need to be addressed. The answer to the question "will you have enough" really depends on what you can do based on those variables.
Planning for retirement is not something you do shortly before you stop working. Rather, it's a lifelong process. Throughout your working years, your planning will undergo a series of stages. You'll evaluate your progress and targets, and make decisions to ensure you reach them.
A successful retirement depends not only on your own ability to save and invest wisely but also on your ability to plan. How much income you'll need in retirement is hard to know and tricky to plan. But one thing's for certain. It's far better to be overprepared.
