How much do I need to save for retirement?
Do you remember when a million dollars used to be the gold standard for the amount to have saved at retirement? Well, as we all know, a million dollars is not what it used to be! Knowing how much you need to save is certainly important, but your target should not be arbitrary, whether it be a million, five million, or ten million dollars. So where should you begin?
Before you set a target number to save, the first thing you may want to ask yourself is: what kind of retirement are you aiming for? In other words, what kind of lifestyle do you want to have in retirement, and how much will that lifestyle cost you in future dollars? The term “Future dollars” is key, because the same lifestyle today will cost significantly more in 20 years. For example, if your ideal retirement costs you $100,000 today, that same lifestyle will cost $180,611 in 20 years, assuming 3% inflation.
Once you’ve put a price tag on the annual cost of your lifestyle at retirement, the next question is: how many years will you be retired? Obviously, none of us can know for sure just how long we’ll live, and family history may not be the best guide. According to the Society of Actuaries, because of medical technology and healthier habits, many couples retiring today may have a 50% chance of at least one of them living into their 90’s. To be conservative, if you retire at 65, you may want to plan for at least a 25-30 year cash need.
By addressing how much your retirement lifestyle will cost and adjusting for inflation and longevity, now you’re better able to answer the question of how much you need to save. If you love crunching numbers and have a financial calculator, you can come up with a pretty accurate estimate of how much you should be savings each year to be ready for retirement. As part of our financial planning process, we use a sophisticated modeling software to stress-test the feasibility of meeting your goals with different savings rates.
If you’d like to walk through your personal situation and how much to save for your retirement, college, a vacation home, or any other goal, send us a message at firstname.lastname@example.org.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.