Saving for Retirement: How Much Do You Really Need?
It doesn't matter what age you are or how long it will be until you retire - most people spend at least a little time wondering how much money they'll need to save to continue to live the lifestyle they want after they've left the workforce. Having said that, understanding what you'll need and actually achieving that goal are two entirely different things.
Given the fact that the stock market is currently down overall, not to mention that there is uncertainty in the economy, major inflation, and other financial stress to deal with, it's natural for people of all ages to worry if they have enough money put away to successfully retire on. Thankfully, simply removing that uncertainty and coming up with a concrete (and most importantly realistic) number can help a lot of those worries go away.
Therefore, if you truly want to make sure that you're saving enough money for retirement, there are a number of important things to keep in mind.
Retirement Planning: Breaking Things Down
As a way to get started, there are a few different techniques that you can use to determine how much money you'll need in retirement.
One is referred to by professionals as "The Final Multiple." As a rule of thumb, this will be about 10 to 12 times your current annual income when you get to be retirement age. If you retire at 67 and you're making $100,000 per year, for example, this method tells us that you would need at least $1 million to maintain that which you are used to.
If you're nowhere near the age of retirement but want to get started as soon as possible, you can also use what is referred to as "The Pacing Angle." This tells us that if you start saving at 30, for example, by the time you hit age 40 you should have about three times the current amount that you make put away for retirement. So to continue with the same example of someone making $100,000 per year, this tells us that over a decade you should have about $300,000 put away.
You could also use what is sometimes referred to as the "Seamless Transition." This means that by the time you retire, you should have at least enough put away to replace between 60% and 100% of the amount of money you were making at the time you left the workforce. So if you were making $100,000 per year at the time you retired, you should have enough put away to give you between $60,000 and $100,000 per year to live off of.
Additional Considerations About Retirement
Of course, there are a number of other factors that will impact the amount of money you'll need beyond simply those examples outlined above. Again, they should be considered a starting point. You'll want to adapt them to meet your own unique needs, whatever they might happen to be.
Case in point: healthcare costs. If you're someone who is perfectly healthy, this will obviously be less of a long-term concern than someone managing a pre-existing condition like Diabetes. The same is true if you know for certain that your healthcare costs will be taken care of versus entering into a situation where this is a total uncertainty. The first person in each of those examples would have to factor in healthcare far less than the second person. That's to say nothing of any unexpected health issues that may crop up along the way.
Naturally, the exact age that you plan on retiring at will also impact the amount of money you need to have saved by that time. Someone who wants to leave the labor force as early as possible will need to save more than someone who was planning on retiring at age 67 or so.
Whether you truly retire or enter a separate "post-retirement career" will also have a definite impact. Some people simply want to stop working entirely and live the most comfortable life possible. Others want to use it as an opportunity to transition into something new, which would give them some type of supplemental income to have access to in addition to whatever they were able to save.
In the end, never forget that when it comes to saving for retirement, it's critical to start early. As the old saying goes, "Rome wasn't built in a day" - and the perfect retirement fund won't be, either. But at the same time, this is one of those scenarios where time can truly be your best friend. If you start making small moves, little-by-little whenever you can today, they will absolutely pay off tomorrow and beyond.
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