One of the most searched phrases on search engines today is “How Much Do I Need For Retirement?”. I recall people when I was growing up saying that you need $1MM saved in order to live comfortably in retirement, was that true and/or is there a new number today?
This is a very complex question and not one that can be answered simply by asking Alexa or Siri. I would also argue that many “rules of thumb” cannot be used either. There are many variables that contribute to determining an individual/family need for retirement savings. Let’s just give you two different scenarios to see how widely this retirement amount can vacillate.
Family A: They plan on retiring at the age of sixty-five and downsizing somewhere that the cost of living will be significantly lower than where they live now. Family A expects that they will need around $50,000 per year in order to live the lifestyle they want to live in retirement. Based upon their respective families they expect to live until their mid-nineties and this would mean they would need this income stream for the next thirty years. A rough back of the napkin calculation would tell you that they will need at least $1.5 MM in assets to fund their retirement.
Family B: They plan on retiring at the age of sixty-five and remaining where they live now so they can be close to their children and grandkids. Family B expects that they will need around $100,000 per year in order to live the lifestyle they want to live in retirement. They really enjoy traveling and do not want to give that up in retirement, but want to increase their budget for it. There is longevity in their family too and expect to live until their mid-nineties and this would mean they would need this income stream for the next thirty years. A rough back of the napkin calculation would tell you that they will need at least $3.0 MM in assets to fund their retirement.
In full disclosure, the above examples are missing a number of components. To name a few, they are not taking into account inflation, return on their investments, health care expenses, and potential long term care issues and/or the death or disability of an income earner prior to retirement. These are just a shortlist of many variables that can take place pre and post-retirement which could impact the amount you will need.
As you can see, using a rule of thumb may work for one of these families and not the other. Clearly this is not an ideal way to plan for your retirement unless you are comfortable with a potentially huge margin of error. The reality is that you will never be able to plan the exact amount you will need, but the idea is to get as close as you can.
Determining how much you need in retirement is a very personal thing and not something that should be left to general rules. It would be advisable that you go through the planning process, the earlier the better, to determine what the appropriate amount you would need for retirement. In addition to clarifying the amount, you should also walk away with a game plan on how to get there. The process does not end here. In fact, this is where the heavy lifting begins and you must begin to implement the strategies determined in the plan to get you the retirement amount you will need.
At this point, you cannot simply put the plan on cruise control and forget about it. You must monitor the plan and your progress over time. The outside forces we discussed earlier could have an impact on your success towards your goal and you will want to know that in real-time. This will allow you to make adjustments and changes to the plan over time in order to maintain you on your path. There may be lifestyle adjustments needed along the way too. Maybe when you began the planning process you were most like Family A and as time went one your goals adjusted to look more like Family B. It would be important at this point to adjust your plan to get you on the different track and keep you on target.
Retirement planning is not something you can simply set and forget, wait until you are five years away from retirement to start planning or simply use a rule of thumb and expect to live the retirement lifestyle you want. It is important to work with a fiduciary advisor, as early as possible, to develop a personalized financial plan to your specific facts and circumstances.
Your retirement is not something you want to leave to a rule of thumb. This is an area of your life that you want to be as precise as possible, so you can live the life you want in retirement. Be sure to contact us, Mitlin Financial, at (844) 4-MITLIN x112 to schedule a time if you would like to discuss a personalized financial plan for you. Be sure to share this article with friends, family and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.