By Paul S. McNulty, CFP®
One of the most common retirement questions people ask is, “Do I have enough money to retire?” What many people don’t realize is that there’s a better question they should be asking, and that is, “Can I support my ideal retirement lifestyle, and for how long can I support it with what I have saved?”
There is no magic savings amount that will guarantee a worry-free retirement for everyone, but you can prepare well and create a plan that is right for your unique life. Since you need your retirement savings to last as long as you do, calculate your retirement number by asking these four questions.
What Does My Ideal Retirement Look Like?
Before you can calculate a financial goal to aim for, you need to decide what you want your retirement to look like. Are you planning to downsize and live simply or travel around the world and invest in hobbies? Your retirement will not look like anyone else’s, so the amount you need to save won’t look like anyone else’s either.
How Much Do I Spend?
Creating a budget is a good practice no matter what age you are, but it’s especially important as you draw closer to retirement. Mapping out your expenses and income will help you create a few different scenarios to determine when you can retire and what your income will look like at different points in your retirement. This doesn’t mean you have to track every single purchase for the rest of your life, but a budget is an excellent tool to give you an understanding of how much you currently spend so you can develop an understanding of what you’ll need down the road. By creating a budget, you can establish a baseline of how much your nest egg will need to be to support your desired lifestyle.
How Long Will I Live?
We don’t expect you to have an answer for this one, but the point is to understand longevity risk, or the risk of living longer than you expect, and plan to have enough money for a longer life. In a perfect world, you’d know exactly when you were going to die and we’d build the perfect plan that ensures your money lasts just as long as you want it to. But the reality is, determining an appropriate planning horizon is a bit of an art and a science. If you die sooner than your planning horizon, you could have spent more money in retirement than you did. If you die after your planning horizon, you could run out of money altogether.
With life expectancies constantly increasing, it’s not uncommon for people to have a retirement that spans 30 years—just as long as your career. (1) That’s why it’s important to plan for longevity, so you can make sure your money lasts as long as you do.
We recommend looking at your family’s medical history as well as life expectancy tables to get an idea of how long you may live. Once you have an estimate, add on an extra 5 to 10 years to account for unexpected medical and long-term care costs.
How Do I Get There?
Once you’ve taken these three factors into account, work backward to calculate a ballpark figure of how much you still need to save to confidently retire. If you want a more detailed number, you’ll also need to consider inflation, longevity, market risk, and healthcare costs. Regardless of where you are on the path to retirement, it’s critical to have a personalized plan and number to work toward. At Boston Metro Advisor, we are here to point you in the right direction. Contact us for a complimentary consultation by calling (781) 995-0253 or email me directly at [email protected] today!
Paul McNulty is the founder of Boston Metro Advisor with over 20 years of experience helping people navigate the ups and downs of the economy toward the financial future they envision. His education consists of a Bachelor of Science in business administration from the University of Rhode Island and the CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation.
Paul’s experience and education have made him a multi-faceted professional capable of assisting people with virtually all their financial needs. His services include every facet of retirement planning, from 401(k) rollover services and income planning to wealth management and estate planning. Paul has been active in his community over the years as a youth sports coach. When he’s not spending time with his wife, Cindy, and their two children, who are both recent college graduates, Paul enjoys reading, playing golf, and fishing. Learn more about Paul by connecting with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.