Many people have definitive ideas about the lifestyle they envision for themselves in retirement, but are often less certain about how much money they’ll need to amass in order to make these dreams a reality.
Financial advisors have traditionally recommended people save at least $1 million to enjoy a comfortable retirement. But people are living longer these days, and Social Security isn’t the panacea it once was, so many pundits now claim the $1 million target is less relevant today than it once was. Some now say that a good rule of thumb is to plan on replacing 70 to 80 percent of your pre-retirement income.
In reality, there is no magic number—no single formula that works for everybody. How much money you’ll need to retire comfortably is a very personal calculation. You need to consider, for instance, how long you expect to stay in the workforce, the type of lifestyle you want to live in retirement, and how much you think it will cost you based on that standard of living.
For example, having grandiose plans to travel the world means you’ll need to amass more of a nest egg than if your passion is gardening or needlepoint. When thinking about how much to save, ask yourself other pointed questions like: Do you have children and grandchildren you’ll need to support financially during your retirement? And do you have large amounts of debt to pay off? Don’t forget to factor in the ever-increasing cost of healthcare. A 65-year-old couple retiring in 2016 will need an estimated $260,000 to cover health care costs in retirement, according to Fidelity.
Many people feel overwhelmed at having to save large amounts for retirement but if you save a little at a time, it can be very manageable. Certainly, it is best to start saving for retirement as soon as you start working, but if that ship has sailed, there’s no time like the present to set money aside for your later years. The more time you have before retirement, the more you stand to benefit from the power of compounding. Remember, even if you are behind in your savings, there are ways to jump start it. For example, individuals who are at least 50 years old by year-end can make their annual catch-up contributions to their workplace retirement plan or individual retirement account.
When it comes to saving for retirement, there are so many variables. While it’s nice to have a general rule of thumb on how much you’ll need to save, there’s no substitute for professional advice in helping you set and reach your savings goals. At Anderson Retirement
Solutions, we understand the importance of saving early and often, and we can help you prepare for a more solid financial future. Please don’t hesitate to contact us at 888.473.6931 if you’d like to discuss these important issues.