How much will you need to retire? This is easily one of the most common questions that financial planners field, but there really isn't a magical number that fits everyone. Most people have heard of common principles like saving at least a million dollars or having a nest egg that is ten times your current income. Another common rule of thumb is that you should have a replacement rate of at least 80% of your preretirement income. But do these principles apply to everyone, and, if not, how much should you really save?
It Might Not Be a Question of "How Much? But "How Long?"
In the next two decades, 79 million Baby Boomers are expected to retire. Of them, many will reach 85 or even older. In fact, according to the Social Security Administration, a man reaching the age of 65 today will live almost another twenty years. A woman who turns 65 today can expect to live a little more than that at 86.6 on average. Obviously, the longer you live, the more you will need in savings.
However, another thing to consider is quality of life as well. Are you a generally healthy person or do you have a chronic condition that might increase your ongoing medical expenses. While nobody can predict when they might incur a medical condition, they can make plans in advance to address the costs. Yet, only 10% have made provision for extended medical care. Therefore, in addition to asking "How Long?" you might want to ask "How Well?" too.
What Will Your Lifestyle Be Like?
Why is it that some households can do fine with a replacement rate of 80% while others need 120%? One of the contributing factors is lifestyle. What will your retirement be like? Do you plan on traveling or taking on new hobbies? Many financial planners suggest that your replacement rate may need to be higher in the first years of retirement as this is when couples tend to travel and live a more expensive lifestyle. Do you expect to maintain your current spending or do you have loved ones for whom you're responsible? Is your home paid off and do you plan on staying there or downsizing? In addition to medical expenses, these are all potential affecting elements that will determine how much you will need to retire.
When Do You Plan on Retiring?
Is 65 really the standard in today's world? That's tough to say. We do know that 18% of Americans earning more than a $1,000,000 don't plan on retiring at all. There are a number of reasons why this might be the case. As life expectancy goes up, many people decide that they want to wait to retire. Retiring early does not necessarily guarantee a better quality of life. In fact, it could be quite the opposite. Those who wait to retire until age 70 actually live almost a year longer than those who retire at 60. And 69% of retirees say that their post-retirement life is comparable or somewhat worse than when they were working. Finally, some people just love their jobs and don't consider it to be work. Knowing when you plan on retiring will affect how much you'll want to save and your retirement planning strategies as well.
So, in truth, there is no magic number, but it's still important to start planning now. If you live in New Jersey, New York City or in the Bucks County PA area, our financial planners in NJ can assess your situation and investment performance to develop strategies that speak to your individual needs. Contact us today at 908-379-8813 or email at: [email protected] to learn more about our retirement planning services.