If there’s one question we hear most pre-retirees ask, it’s “How much do I need to retire comfortably?” While the answer will depend on your unique situation, most experts say to expect to spend between 55-80% of your pre-retirement annual income per year during retirement.
That being said, there’s so much that goes into answering this question; like where you’re going to live, when you want to retire, whether you will work in retirement, and more. Here, we use eight helpful questions to help you answer that question for yourself. (And, of course, working with a financial advisor that specializes in retirement planning is also very helpful.)
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 join 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 college education or down payments on home purchases down the road.
Where Will You Live?
Housing costs 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 Retirement Needs a Unique Plan
It would be nice if you could calculate exactly how much you will need to retire comfortably. But due to the variety of factors that go into retirement, instead, you need a sound retirement strategy made for you.
At Key Wealth Management, we specialize in helping pre-retirees and retirees plan for and live in retirement. Our services focus on money management, as well as other issues that are critical to your financial well-being, including investment management, financial planning, and insurance. If you’d like our help, schedule an introductory appointment by reaching out to us at email@example.com or (724) 934-9196.
Todd Stepke is the founder and a financial advisor at Key Wealth Management, an independent financial firm committed to putting its clients first and building long-lasting relationships that carry them through life’s ups and downs. With over 25 years of experience in the financial industry, Todd provides his pre-retiree and retiree clients with customized solutions and a personal touch—getting to know their goals, needs, concerns, and life situations to build plans that help them pursue their ideal futures. Todd is known for going the extra mile and educating his clients, simplifying the complicated so they can make empowered and informed decisions.
Todd obtained a bachelor’s degree in accounting from Duquesne University. Spending many years as an accountant, he continually saw that his clients were not being served well by their financial advisors. Todd now blends his vast tax knowledge with his passion for seeing his clients thrive financially. Outside of work, he enjoys spending time with his wife, Kandace, biking, gardening, fishing, perusing estate sales, and trying his hand at new recipes (especially baking). To learn more about Todd, connect with him on LinkedIn.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Key Wealth Management, a registered investment advisor and separate entity from LPL Financial. The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.