“How much money will I need in retirement?”
It’s a question we get asked often, from people in all age groups, professions, income levels, and geographical locations. And from people with diverse spending habits.
Of course, lots of people stand ready to share a formula or fixed-target amount they’ve heard. One recent study found that average Americans believe they’ll need $1.7 million to retire. Another often-mentioned opinion suggests you’ll need 80 percent of your pre-retirement annual earnings after retiring.
But there is no cut-and-dry answer to the question. Therefore, our response when people ask us how much they’ll need for retirement is not what most expect to hear.
“You tell us,” we say.
The fact is, how much money you need for retirement depends on the lifestyle you want when you retire. And that requires asking yourself some questions.
Do you want to live in your current home, downsize, or move to a more pleasant climate? Are you planning to drive a similar car or splurge on that rebuilt 60s classic you’ve always wanted? Are you looking to travel more often and, if so, to where?
And those are the easy questions. Harder discussions involve how you plan to pay for healthcare, at what age you will begin drawing Social Security benefits, who else depends on your income, and how much debt you still have.
Only with answers to those and many more issues could we begin to project how much money you’ll need to set aside for retirement. So don’t be surprised when a professional financial advisor responds to your how-much-money-will-I-need-in-retirement inquiry with a list of questions for you.
The good news is that collecting answers to those questions enables your financial advisor to help you begin budgeting for retirement. So while we can’t provide a one-size-fits-all solution to determining how much you’ll need when you stop working, we can help prepare you to answer the question for yourself.