Deciding How Much to Save for Retirement
As you approach the milestone of retirement, you may begin to worry you haven’t saved enough to last a lifetime. This is a common fear among many soon-to-be retirees, and it’s an important issue to address. Below are four tips to help you decide how much you may need to save for retirement.
#1 – Consider your retirement goals.
The first step in determining a target retirement savings amount is to articulate your retirement goals so that you can then gain an understanding of the amount of money you may need to achieve those goals. As a starting point, consider the following questions:
- How will I spend my time?
- What retirement dreams do I hope to accomplish?
- Do I plan to leave a financial legacy for my loved ones?
- What are my health risks?
- What are my potential tax liabilities?
- How will I pay for medical expenses?
- Are there any large purchases I hope to make (e.g., a second home, grandchild’s college education, boat, etc.)?
#2 – Determine your monthly income needs.
With your goals as a guide, the next step is to gain an understanding of how much monthly income you’ll need to pay for your retirement lifestyle. Start by understanding your basic monthly expenses. How much will you spend on housing, food, healthcare, transportation, utilities, travel, hobbies, etc.? When planning, keep in mind that healthcare expenses increase as we get older, making them one of the largest expenses faced by retirees.
If you plan to live a similar lifestyle in retirement as you do today, it shouldn’t be too difficult to estimate your monthly expenses. However, if you plan to make a major life change, such as moving overseas, downsizing your home, etc., then you’ll need to consider how that change impacts your monthly spending needs.
#3 – Consider other sources of income.
Remember that the burden of saving for retirement may not fall entirely on your shoulders. Many Americans are eligible to receive Social Security and/or Medicare benefits as well as other sources of income that can help cover your monthly expenses and stretch out your retirement savings.
For example, suppose you decide you’ll require $10,000 each month to live your desired retirement lifestyle. You may be eligible to receive $2,000 a month in Social Security benefits, $2,500 a month in rental property income and $500 a month in interest income from your investments. Added up, these additional income sources hypothetically provide you with $5,000. That means you would only need to withdraw $5,000 per month from your retirement savings rather than the full $10,000.
#4 – Talk to a financial advisor.
A great way to get a general idea of how much money you may need to retire is by using a retirement planning calculator, such as the one available on Creative Planning’s website. This calculator can help you visualize how changes in various inputs may impact your long-term retirement savings potential. It can also help you begin to understand where you stand on the path toward achieving your retirement goals.
However, retirement savings calculators have their limits, and you’ll get more out of a meeting with a qualified fiduciary financial advisor. He or she will be able to ask additional questions about your unique situation and goals and help you plan for possibilities that a calculator may not be able to account for. Could you use some help planning for retirement? Creative Planning is here for you. Our goal is to provide you with the confidence of knowing you’re on track to achieve your retirement goals. To do so, we integrate the various aspects of your financial life into a comprehensive financial plan specifically designed to help you retire. To learn more, schedule a call with a member of our team.
