When you start getting antsy at work, you might find yourself asking, “How much do I need to retire?” We all know that growing and saving your money for the long term is a big part of retirement. But, how much, exactly will you need? First, you’ll need to determine where to best put your savings. Also, you’ll need to consider which stage of life you’re in and how much you currently have saved. Finally, it is a great idea to get with a financial professional. An experienced advisor can walk you through your retirement choices. However, we’ll review some key ideas you can keep in mind and begin to think about on your own.
The Stages of Retirement Savings
Life is always growing and changing. This happens with your money, too. Many people find that savings goal they had earlier in life change as they age. For instance, in the beginning of your career, it is likely that your expendable income was minimal. So, you may have used an extra money to create an emergency fund. However, as your income increases, so do you choices. Then, when you hit retirement, goals for your money will change again. In this stage, protecting your money and having income to last is what matters. If you’ve worked hard to save up, then you’ll likely want to protect it. When you ask yourself, “How much do I need to retire?” what you’re really asking is, “Do I have enough to last the rest of my ife?”
Getting Started: How much do I need to retire?
Of course each person’s income, lifestyle and goals are different. However, everyone shares some basic similarities in figuring out how much you’ll need. First, is the importance of a budget. We all know we should use one. Yet, not many of us do. We recommend you list out the most basic expenses first, such as housing, food, utilities, and transportation. Next, write out other monthly required expenses, including insurances, household needs, car maintenance, medical co-pays or bills. You’ll also want to include personal care items, such as haircuts or clothes. Then, indicate any debt payments or annual bills you have to pay. Be sure to document them as monthly payments, rather than yearly payments. (IE: a $2400 per year bill becomes $200/month)
Once this is complete, document other items you’d like to be able to pay for in your retirement. This could include things like dining out, landscaping, vacations, gift-giving, charitable donations, or household renovations. In addition, you may have larger items you’d like to pay for such as purchasing a second home, traveling, or purchasing a recreational vehicle. Perhaps you’d also like to give money to your children or grandchildren. Also, some retirees like to put some money in the market, real estate, or even collectibles. Add up all your essential needs with your wants, you get your total retirement income goal.
Strategies for Growing and Saving Money
Knowing your retirement income goal is important. But, you also need a plan for how to get there. Many people have retirement accounts such as 401(k)s, IRAs, or 403(b)s. During your working years, having your money in the stock market is a typical strategy. The hope is that the money grows because it is invested in the stock market. However, the market does carry risks. Many people feel that “time is on their side” when they begin investing. They feel that even if the market drops, they don’t need their money for many years. So, it has time to recover. However, once you approach retirement, you may not feel the same way. While younger people may feel their accounts could bounce back from a market downturn, retirees may not. In addition, the types of life insurance you carry may impact your retirement savings picture as well. In essence, it is a good idea to have a plan for growing and protecting your money.
As Retirement Approaches
Once you’ve saved a fair amount, you may begin to wonder “how much do I need to retire”? Typically, 5-10 years before retirement is a good timeline for evaluating your savings and your plan. Market ups and downs might have been ok when you were working, but safety may become more important now. As retirement gets closer, you may want to seek ways to protect your principal. Of course, you’ll want to have a reasonable rate of return as well. Thankfully, there are products available that allow for both reasonable growth and protection of your money, too. Fixed index annuities (FIAs), for instance, are commonly used to achieve both of these objectives. You have the ability to see some gains when the market is up. Yet, your principal is protected from loss if the market goes down. For many, this is a win-win situation in retirement.
Next Steps
The best way to see if you have enough to retire is to look at the whole picture, Our office offers complimentary educational sessions on retirement options, as well as one-on-one consultations to review your situation. We’ll help you learn your options and discover how you can reach your goals. Make a budget, know your income needs, and give us a call. We’re here to help you protect and save your money for the rest of your life. Let’s build a bridge between where you are and where you want to go.
