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How Much Money Do I Need To Retire?

retirement planning, financial planning


It would nice if I could give you the exact amount of money you need to retire. Achieve that figure and walk away from your job. Stop worrying about the stock market, what the Fed is doing, or who says what in Washington. Hit your number and go.

If you type the search phrase, How Much Money Do I Need To Retire, into Google, you will get something in excess of 43 million links to that question or a close variant. Isn't that amazing? A question that is very personable still has 43,000,000 places you can consult.

That dollar figure above is probably incorrect for you. The amount of money you need to retire is based on these five factors:

What your goals are for your retirement

Do you want to spend the first several years traveling the world, visiting your adult kids and grandchildren, remodeling your home, or splurging on the RV you have always dreamed about before settling down? Or, are you really looking forward to staying close to home, being with family and friends, spending more time reading, relaxing, volunteering...simply enjoying your freedom?  

The answer will determine one of the most important questions about money and retirement: the type of lifestyle you want to live. While it is normal for after-retirement living expenses to drop anywhere from 25-50%, it is entirely possible to spend more while you are fulfilling lifelong dreams and aspirations. 

How much you have saved to this point

The average 55-64 year old American has set aside just over $100,000 for funding his or her retirement. That is around $300 a month spread over a typical life span. Add an average of $1,300 in monthly Social Security, minus the cost of Medicare, and that person will have to make due on about $1,500 a month, or $18,000 a year. That is not enough.

Most reports I consult say that an absolute minimum of $600,000 is necessary to provide a decent lifestyle in retirement, and that assumes two people receiving Social Security and with no major health issues to pay for. The most common figure given today on some of those Google pages is $1,000,000 or more. Even at that figure, your retirement will not be lavish, but with careful planning you should be good for the rest of your life. Does being anywhere near these goals seem completely out of your reach? Then the next factor becomes critical:

 How much more you can save before you want to retire

Are you willing to change your spending habits now to achieve your retirement goal? Can you figure out a way to put 20% or even 30% of today's income into your retirement investments? Can you move from instant gratification to delayed payoff? While the answer should be obvious, too many folks don't make the proper choice. 

But, it is a simple math question. What you have in savings and investments plus what you add to those accounts = your retirement nest egg. One plus one is two. There is no way to finesse a different result. Unless you don't want to retire until much later in life, you must sacrifice now to make tomorrow happen.

 How your health or family situation will affect retirement

The average American will spend around $250,000 in medical expenses after age 65. Even with Medicare and a good supplemental policy plus drug coverage,  you must plan on about $12,500 in year in medical costs. With a major health challenge, that figure can easily double. If you are already living with a serious health concern or two, plan on the higher figure.

Are you likely to have to care for one or two aging parents? When you or your spouse or partner needs assisted living or nursing care, will you have the money to pay for that? Will family members be willing to pitch in? Add those projections into your needed money totals.

 How long you will live

If you thought the first four factors were tough, I have saved the best for last. None of us like to face our own mortality, but the question becomes quite important as you run numbers through your retirement calculator. If you come from a family that has many members who make it into their 90's or beyond, then you should probably be on the safe side and assume you will live that long, too. 

If you take care of yourself, watch what you eat, and are generally happy, statistically you are likely to live longer than someone who believes pizza is one of the major food groups. Of course, any one of us could be hit by a car tomorrow. But, prudent planning cannot assume anything.

A previous post, Retirement May be Bad For You, suggested retirement isn't the best choice for everyone. If that is you, pass this information along to a friend. Otherwise, I hope these five retirement planning factors help you work through some tough questions. 


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