How Much Do I Need to Retire Comfortably?

Most financial experts advise that you should plan to have saved enough money to generate 80% of your pre-retirement annual income each year in order to retire comfortably.

When planning for retirement, there are multiple factors to consider. What “comfortable” means to you may be different from what it means to someone else. Perhaps you want to stay close to family and friends or you’re the adventurous type that would like to travel the world. Every retirement plan is unique, so it’s important to have an estimate of what it will cost you to realize your goals. Think about the following questions when deciding how much money you may need to retire comfortably.

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.

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 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 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. Many parents still give financial support to their adult children (ages 18 to 34), 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 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 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.

Develop a Retirement Plan to Match Your Goals

Retirement planning is an important yet complex task, and there isn’t a one-size-fits-all formula or percentage that can be applied across the board. Instead, you’ll need to take a closer look into your specific situation in order to get an accurate picture of what you want your future to look like.

If you’re considering partnering with a financial planner, reach out to schedule a 15-minute introductory meeting by calling us at (231) 421-7711 or visit our Contact Us page to schedule online.

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