How much money do you need to save for a comfortable retirement?
This is a common—yet loaded—question, as the number you need for a comfortable retirement differs from individual to individual and from family to family. Your definition of a comfortable and secure retirement depends on your vision for the future, plus other personal factors like retirement timeline, life expectancy, and future healthcare needs.
But even though everyone’s number is different, this does not mean that you cannot discover your specific number and work intentionally toward that goal.
You just have to put in the work to define your specific vision for retirement, calculate the budget that would allow you to achieve that vision, and factor in the other personal details that are specific to your life and circumstances. Although there is no one-size-fits-all model to retirement savings, answering the questions below can help you land on a realistic target savings goals.
1. When You Retire, Do You Expect Your Budget to Change?
Budgeting was probably something you did in your 20s when your income was small and your expenses were high (hello, student loans). Now budgeting is going to become an important part of your financial life again. Knowing your monthly expenses and anticipating how your budget might change in retirement is essential to discovering your accurate retirement number.
2. What Type of Lifestyle Do You Want?
Knowing the type of lifestyle you want to live can provide more clarity for how your budget might change. If you plan to spend a lot of time traveling, your expenses might go up. If you plan to downsize your home and spend most of your time relaxing and playing with your grandchildren at the local pool, your expenses might go down. It all depends on how you want to spend your time.
3. At What Age Do You Want to Retire?
If you want to retire in your 50s, then you will likely need to plan for more years of retirement. (Some people who retire early actually spend more years of their lives in retirement than they did in the workforce!) Obviously, this can create challenges in terms of your long-term retirement income security. Still, these are challenges that can be overcome with proper planning.
4. Will You Bring Debt Into Retirement?
Planning for continued debt obligations in retirement is essential. Some pre-retirees prefer the peace of mind that comes from paying off the mortgage before retirement. Others prefer to keep their mortgage so they can save more cash in investment accounts that are earning compound interest. This question is worth discussing with a financial advisor who can help you weigh the pros and cons of your unique situation and needs.
5. What Healthcare Coverage Will You Have?
You will not be eligible for Medicare coverage until just before your 65th birthday, so if you are retiring early, it is important to plan for healthcare costs in the years before your Medicare coverage kicks in. Private health insurance can be enormously expensive, but you may be able to find a plan that works for you by using a comparative analysis tool for private health insurance.
6. Will You Be Supporting Any Kids or Grandkids?
Many retirees want or need to be able to support children or grandchildren in retirement. For some retirees, this may involve supporting a disabled adult child for the rest of their life. For others, this may mean contributing to a grandchild’s college education fund on an annual basis. Whatever your goals or needs, make sure you factor support payments into your budget.
7. What Does Your Family History Tell You?
Finally, your family history can give you insights into your life expectancy or future long-term care needs. If you have family members with genetic, long-term illnesses, you will want to plan for those costs in retirement. Fortunately, there are different vehicles you can use to help cover these costs. A financial advisor can help you find the right vehicles for your expected longevity and future healthcare needs.
Partner With an Advisor Who Can Help Today
At Frazie Wealth Management, we specialize in creating custom plans and recommendations for clients based on their goals and needs in retirement. We do not provide cookie-cutter recommendations, because we know that your ideal retirement looks entirely different from the next guy’s.
If you want help answering these questions in detail and using those answers to identify your specific retirement number, request your free 60-minute listening session today or reach out to us by phone at (740) 354-9585 or by email at Jeremy@fraziewm.com.