It sure would be nice to have a one-size-fits-all retirement savings goal to work toward, but it just doesn’t work that way. If you ask Google, “How much money do I need to retire?” you’ll see an overwhelming number of results. Yes, this question must be asked, but Google won’t have the answer.
You need enough money to cover your essential expenses in retirement, but you also want to retire comfortably enough to do many of the things you’re dreaming about. Since no search engine can calculate your hopes and dreams, let the following questions guide you when figuring out how much money you need for your retirement.
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 during a bear market. (1) 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 drains 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. It’s not a requirement, however; low interest debt can be beneficial to carry into retirement depending on your overall plan.
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 secure 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 over the length of their retirement. (2)
Not to mention the possibility of long-term care. Nearly 70% of today’s 65-year-olds are going to need some form of LTC, (3) with costs that can make your jaw drop. In 2022, the national average is $306 per day or $9,305 per month for a private room in a nursing home. (4) There are plenty of options to consider to help you pay for long-term care, including traditional long-term care insurance, life insurance with a long-term care rider, an annuity with a long-term care rider, or self-insuring. Whatever you decide, don’t let healthcare and long-term care costs 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. Almost 80% of parents said they still give financial support to their adult children (ages 18 to 34), according to a Merrill Lynch study. (5)
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 Charlottesville, VA, is 4.5% higher than the national U.S. average. (6) But move just about 45 minutes west to Staunton, VA, and the cost of living is much lower, 13.8% below the U.S. average! (7)
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. (8) 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 Retirement Needs a Unique Plan
If only figuring out how much you need for a comfortable retirement were as simple as a quick Google search! On the contrary, to apply to your unique situation, your magic number requires a deep dive into your financial situation, family history, and goals.
We at Wilkinson Wealth Management strive to simplify financial management while prioritizing understanding your unique needs—all while inspiring you to be more confident in your financial decisions, including figuring out how much you need to save for retirement. Outsource your anxieties to us; we’ll be in charge of protecting your wealth while you live within a personalized retirement plan.
If you’d like to partner with a financial planner who can help you find the right balance between enjoying life and safeguarding your nest egg, call 434-202-2521 or email email@example.com!
Susan Wilkinson is founder, president, and financial advisor at Wilkinson Wealth Management, a financial services firm in Charlottesville, Virginia, providing customized financial planning and strategies with a personal approach. With over 25 years of experience, she has a passion to come alongside her clients to help them fulfill their dreams and grow their wealth so they can be financially independent. Susan is known for listening to her clients, digging deep into their values, concerns, needs, and goals so she can build a financial plan tailored to their unique life. She prioritizes building long-term relationships with her clients and being the person they call when life throws a curveball or questions arise.
Susan is a CERTIFIED FINANCIAL PLANNER™ professional and has an MBA from Webster University and a Bachelor of Liberal Arts in Economics and Sociology from the University of Mary Washington. When she’s not serving clients, you can find Susan outside, either gardening, biking, or hiking. She’s a homebody at heart who loves music, especially playing the piano and cello. One of her favorite things to do is spend time with family, including her husband, Terry, her children, and her twin granddaughters, whom she affectionately (and appropriately) calls the “twinados.” To learn more about Susan, connect with her on LinkedIn.
(5) https://blog.massmutual.com/post/parents-supporting-adult-children-the-good-and-bad#:~:text=Many%20 parents%20provided%20financial%20support%20to%20adult%20children&text=Seventy%2Dnine%20 percent%20of%20 parents,Lynch%20survey%20of%202%2C500%20 parents
(8) https://www.rate.com/research/news/retirement-expectancy#:~:text=Age%2090%20isn't%20some,woman%20the%20 odds%20are%2046%25