Life is full of uncertainty. What your career will bring, changes in your family, your health, and the market. And these are just a few! So it’s hard for anyone to predict the future, but there are really only two ways to figure out how much you need for retirement. And, as you’ll see, one offers a better future for most.
1. Save What You Can
It’s no secret that many people are putting off or avoiding saving for retirement. A recent article on CNN.com shared that about 26% of workers said they and their spouse have saved less than $1,000 for retirement, according to a report from the Employee Benefit Research Institute. Another 16% said they have between $1,000 and $10,000 stashed away for retirement. While some of those are no doubt younger workers who have time to save, some are likely not. It’s highly doubtful that they’d be able to retire at all on that!
Some financial planners point out that planning retirement spending around your current income might not make sense. Many people drastically change their spending habits in retirement. Expenses might shrink, or they might increase. But, even if they stay the same or decrease, you have to consider what the markets might do, how inflation might affect your savings, or how healthy you will be.
2. Work Backward and Make a Plan
This is the advice you’d likely hear most often. This involves some version of working backward to figure out what you’d like to spend every year, taking a specified withdrawal percentage each year (usually about 4%), and the considering what you’ll get back from social security. For example, if you and your spouse receive $3,000 a month ($36,000/year) from social security, and will need $100,000/year to cover your expenses and live the life you want, you’ll need about $1.6 million ($1.6 million x 4% = $64,000).
It’s commonly accepted that you’ll generally need to replace between 70%-80% of your income in retirement. Some expenses may decrease - for example, those that go along with work and a career. At the same time, there may be other expenses that will increase, including travel, entertainment, and even shopping. It’s probably better to assume you’ll spend more money, rather than less. Think about the retirement you'd like to have -- and the costs related to the activities you intend to pursue -- and budget them in.
We are here to help answer questions and to help you plan for a better retirement. We always say that there is no one-size-fits-all solution, and what’s right for your friends, neighbors, and co-workers may not be right for you. We offer a no-obligation phone call or appointment to answer your questions and begin the conversation about what’s best for your future. We hope you’ll call us today at 216.520.1711, email us at Quarterback@Lineweaver.net or click here.