How Much Do You Really Need to Retire?
We’ve all heard the saying: “You need $1 million to retire.” It’s one of those pieces of financial advice that never goes out of style—but it doesn’t tell the whole story. Part of what makes retirement planning so hard is that there are so many variables involved. You might not know how much money you need until you’ve got a lot more context than just your age and current savings balance. We’re here to help with that by outlining how much money you need to retire, plus some planning tips to consider.
It depends on when you plan on retiring.
The amount of money you’ll need to retire depends on when you plan on retiring. The earlier you decide to leave the workforce, the less money you’ll be able to withdraw from your retirement savings each year.
On the other hand, if you decide to work until after 70 or even 75 (by choice or necessity), your money will have more time to grow before being withdrawn. Additionally, financial planning techniques like “spreading out” contributions over multiple years can help mitigate risk by spreading out money across a longer timeframe. Also, at age 70 is when you are required to start drawing social security (you can start as early as 62 in most situations).
Do you have goals for your family?
If so, now is the time to start talking about them. After all, how much do you really need to retire? It depends on what life will look like when you’re ready to leave work behind — but it also depends on who’s going to be living with you at that point. Do you want to help your children with college? Do you want to help pay for your grandchildren’s education? Do you want to travel the world with your spouse or partner? If so, then maybe those are things worth considering in terms of how much money it’ll take for retirement. Or perhaps there are charitable causes that are important enough to warrant some financial investment from both sides of the equation (i.e., both employers and employees). Whatever the case may be for each person individually, we encourage everyone reading this article today—and everyone else who is thinking about their future finances—to start having these conversations now rather than later!
Do you want to travel?
If you are planning to travel as a primary source of entertainment during retirement, then it is important that you have enough money saved up.
While traveling can be an exciting and rewarding experience, it requires that you plan ahead and anticipate expenses. The more time you spend on the road, the more money will be required for things such as transportation, food, lodging and souvenirs.
Traveling can also help keep your body healthy by exercising regularly (walking) and exposing yourself to new cultures which may include healthier diets or less processed foods than what is available in most Western countries today.
Are you going to have a paid-off house?
Will you owe anything on your home in retirement? If yes, you’ll want to ensure you factor in the cost in your projection. Remember to include interest to properly determine how much this will cost you. Ultimately, many retirees still have a mortgage. In fact, if you were lucky enough to lock in a historically low mortgage rate, then paying it off may be the exact wrong decision. But that is a different topic on paying debt vs investing.
This will put it into perspective: Let’s say your annual income is $50,000 per year. Without factoring in any taxes or charitable donations, that means that roughly 10% of your earnings go toward paying off your house every year (assuming an average mortgage rate). If this is still unclear for some reason, let’s look at another example: Let’s say two people make $100k per year: one who owns their place outright and one who has an outstanding mortgage worth $1 million. In this case, 20% of each person’s income would go toward paying off their home loans every year (10% goes toward property taxes).
What are your long-term care needs?
Long-term care costs can be difficult to plan for, but it’s important to do so. Long-term care is any help you might need with basic activities of daily living, such as bathing and dressing. It also includes help with more complicated tasks like cooking, shopping and taking medication.
The cost of long-term care varies greatly depending on where you live and the type of services you receive. The average annual cost for nursing home residents in 2017 was $88,092 according to Genworth Financial’s Cost of Care Survey; however, some people can pay less than $30 per day if they’re eligible for Medicaid or have private insurance coverage.
If you have a significant other who will also be retiring at approximately the same time as yourself who has no children from a previous marriage and whose parents are dead (so there’s no one else besides your spouse who will receive inheritance money), then perhaps just one spouse needs enough money saved up so that both spouses could receive all their necessary medical treatment without having to worry about running out of money before reaching an age when one could qualify for Medicare benefits (which begins at 65 years old). A good general rule of thumb is that retirees should expect their retirement income sources (Social Security payments) plus assets minus expenses equal 20 times their spending needs each year—but this figure could vary depending on certain factors including health conditions or whether retirees intend on moving into an assisted living facility near family members once they retire from work .
There are many factors that will influence how much money you need in retirement, including when you plan to retire and how much of your home you want to pay off before you stop working.
In addition to your current income, there are many other factors that will influence how much money you need in retirement. For example, it depends on when you plan to retire and how much of your home you want to pay off before stopping work. It also depends on whether you want a paid-off house (which could cost anywhere from $100,000-$300,000), or if instead you’d rather travel the world and live off the capital in your savings account instead. Other considerations include what level of long-term care insurance coverage is right for your family as well as potential health issues that may occur later in life.
It’s important to remember that there are many factors that will influence how much money you need in retirement, including when you plan to retire and how much of your home you want to pay off before you stop working. It can be challenging to know exactly how much money you need for the rest of your life, but it’s always good to start planning early because even small changes now can make a big difference later on. If all this talk about retirement has got you worried about what lies ahead then don’t worry we’ll help guide with our advice on saving and investing!
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Matt Ward, CFP®