How Much Do I Need to Retire Comfortably?
By Net Worth Advisory Group
How much money do you need to retire comfortably? It’s the million-dollar question—quite literally. A good rule of thumb says you will end up spending about 80% of your pre-retirement income annually in retirement.
While the answer varies depending on your lifestyle, goals, and financial situation, there’s no denying that planning for retirement can be a daunting task. It requires navigating complex calculations and making difficult decisions about your financial future. But fear not, because with the right approach, it’s possible to retire with confidence and financial stability. So, put on your thinking cap, grab a cup of coffee, and let’s explore the world of retirement planning together.
What’s Your Ideal Retirement Date?
Your age (now and in retirement) is one of the most significant factors to consider when determining how much money you need to save. If you want to retire early, you’ll have fewer years to save for a longer retirement. And if you start claiming Social Security benefits before full retirement age, you’ll also have to factor in a smaller monthly benefit amount.
The state of the stock market can also play a role in how much money you need and how long your money lasts. A Vanguard study found that you have a 31% higher chance of running out of money if you retire near or during a bear market. Of course, you have no way of knowing if we’ll be in a bear or bull market when you retire—but this is a scenario you must account for in your retirement planning.
What Do You Want Your Retirement Life to Look Like?
Have you thought about the type of lifestyle you want to have in retirement? If you know you want to travel, play golf, or spend time with your grandkids, you need to factor in what that looks like and how much it will cost.
For example, if you plan to travel, you’ll need to consider:
- Will you be traveling stateside or internationally?
- How often do you want to travel?
- How would you like to get there? (e.g., car, plane, or RV)
- Where would you like to stay? (e.g., 5-star hotel, Airbnb, with family members)
- Will you be traveling with your family? Would you like to cover their expenses too?
- Will you maintain your primary residence? If so, who will watch your house and maintain it while you’re gone?
Even if your dream is simply to spend time with your grandkids, you’ll still need to think through your expectations and expenses. To some people, “spending time with grandkids” means babysitting a few times a week. To others, it means footing the bill for all-expenses-paid trips to various destinations of their choosing. Whatever it is you want to do with your time, map out the details so you can have a clear picture of how much you’ll need to make it a reality.
Will You Earn an Income in Retirement?
Working during your retirement is a great way to stay active, keep your mind sharp, and maintain a sense of purpose. Some retirees choose to build a second career through consulting. Others decide to pick up a low-stress, part-time job at a family office or retail store. No matter what you do, if you plan to work during retirement, you won’t have to save as much to live comfortably.
How Much Debt Do You Carry?
Bringing debt into retirement has two major drawbacks:
- It reduces the amount of cash flow you have for housing, travel, hobbies, and other non-essential purchases.
- It can potentially drain your retirement savings quicker, which means you may run out of money or have to adjust your lifestyle down the road.
If you carry debt, take a close look at what you owe and figure out how much cash flow you’ll need in retirement to cover these expenses. Some people prefer to pay off any high-interest consumer debt before they retire. Others will take it one step further by paying down their mortgage and auto loans too.
What Kind of Healthcare Coverage Do You Expect to Have?
Right now, you most likely have health insurance through your employer. When you stop working, you’ll need to have a plan for healthcare coverage another way. You may be able to hop on your spouse’s plan, if he or she is still working. Or you can get coverage through the healthcare marketplace. You qualify for Medicare starting at age 65, but even then, you may want additional coverage to pay for prescription drugs, dental care, eye exams, and other expenses.
Retirees sometimes fail to fully plan for expenses during the later stages of retirement, and medical care often tops the list. It’s estimated that retirees will use 15% of their income for health expenses, and the average retired couple could see healthcare expenses of approximately $300,000 after age 65. Don’t let this be a planning oversight that prevents you from retiring comfortably!
Will You Have Any Dependents?
Your kids may be grown and out of the house by the time you retire, but that doesn’t necessarily mean you’ll stop supporting them financially. Over 79% of parents said they still give financial support to their adult children (ages 18 to 34), according to a Merrill Lynch study, and the COVID-19 pandemic caused a boomerang effect, with 67% of adult children still living at home with their parents after returning home in need of financial help.
And even if you aren’t helping your kids out with daily expenses, you may want to contribute to their weddings or down payments on home purchases down the road.
Where Will You Live?
Housing may be your biggest expense in retirement. And even if your home is paid off, you might want to consider downsizing to a smaller place that requires less maintenance and has cheaper utility costs.
To save even more, you can think about relocating to an area that has an overall lower cost of living. For example, the cost of living in Orlando, FL, is only 3.3% higher than the national U.S. average, whereas the cost of living in Los Angeles, CA, is 76.2% higher than the U.S average. As you can see, where you live can make a huge impact on the overall cost of retirement.
What Is Your Family’s Health History?
The average 65-year-old man has a 35% chance of living until age 90; that rate goes up to 46% for a woman the same age. And while life expectancy is unpredictable, if your family has a strong history of living to age 90 and beyond, your chances may be even greater than these odds. In this case, you’ll need to determine if your planned retirement savings will last long enough.
Similarly, if you have known health conditions and/or a family history of health problems that could affect your life span, you’ll want to consider this too.
Your Unique Life Needs a Unique Strategy
While it would be convenient if there was a straightforward formula or percentage to determine the amount you need for a comfortable retirement, the reality is that it’s a complex process that involves analyzing your individual financial situation, family history, and goals. At Net Worth Advisory Group, we understand the importance of simplifying financial management and tailoring our services to meet your unique needs, which includes determining the amount you need to save for retirement.
Not only do we provide you with the necessary tools and resources to make informed decisions, but we also strive to be responsible stewards of your money. By entrusting us with your financial planning, you can focus on living the life you want without the stress of financial uncertainty.
If you’re seeking a financial advisor who will listen compassionately to help you plan strategically and create a personalized retirement plan that balances your lifestyle goals with financial stability, call us at 801-566-6639 or schedule a complimentary, no-obligation consultation to see if we are a good fit to help you pursue the retirement you dream of.
To learn more, visit our website.
About Net Worth Advisory Group
Founded in 2003, Net Worth Advisory is an independent, fee-only, CERTIFIED FINANCIAL PLANNER™ and investment advisory firm located in Salt Lake City, Utah. We specialize in helping people transition from the workplace into retirement, and ensuring that those who are already retired will not outlive their nest egg. Our top priority is to have clients experience a greater sense of ease with diligent, personalized wealth care and the implementation of customized financial plans and ongoing personalized asset management. We equip all clients with a comprehensive financial plan, meeting every six months to update as needed and review investment performance. Our team is passionate about providing comprehensive financial planning with the fee-only model, and we love feeling like we’re making a difference in our clients’ financial lives.
As a NAPFA-registered fee-only advisory firm, our recommendations are untainted by a hidden agenda to sell financial products paying large commissions. Unlike our competitors at brokerage firms, insurance companies, and banks, we are compensated solely by our clients, so we are financially motivated to provide objective advice that is always in our clients’ best interests. Anyone can call himself or herself a financial planner, but only an advisor with the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation has met the education, examination, experience, and ethical requirements mandated by the CFP® board. Of the estimated 800,000 financial advisors in the U.S., only 55,000 have earned the CFP® designation. All Net Worth advisors are either CFP® professionals or CFP® professionals in training.
Net Worth Advisory’s mission is to significantly improve the lives of our clients by delivering exemplary financial planning and wealth management advice that enables them to live the lives they have imagined.
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