By Krista McBeath, McBeath Financial Group
As a retirement planner, my mission is to help you achieve your retirement goals. When people consult with me, they often want to know if they have saved enough in their IRA or 401K to enjoy the retirement of their dreams without running out of money. For those anticipating retiring, there’s one question everyone wants to know the answer to: How much money do you actually need to save to retire?
It’s not a simple answer but is based on several factors. I’ve created retirement income plans that range from modest accounts of just under $100,000 to multi-million dollar estates. Many factors determine how much is needed to retire, so the final figure can vary greatly. Moreover, planning and managing your portfolio can often be more important than the actual accumulated savings.
Here are some factors that might inspire you to build a nest egg that helps you achieve more in retirement.
Setting Your Retirement Savings Target: How much have you saved for retirement? Are you on track to accumulate a retirement fund of $1 million by age 65? Many retirement counselors encourage pre-retirees to aim for this goal. If you have $1 million in invested assets when you retire, the conservative 4 percent rule would indicate you are able to withdraw $40,000 a year without reducing the principle. Supplemented by Social Security benefits, a well-diversified investment portfolio could maintain a modest lifestyle for most people. Where lifestyles and actual retirement savings differ is where customized financial planning strategies are important to reach goals.
Accounting for Inflation and Medical Costs: If you’re 20–25 years away from retirement, you may want to consider the impact of inflation and medical costs on your desired retirement income. To maintain a certain level of annual income plus Social Security benefits, you may need to save even more in retirement funds. It’s essential to work with a financial professional who can help you determine the right target for your unique situation.
The Importance of Saving Adequately for Retirement: There are many variables in retirement planning, but two realities are hard to ignore. First, retiring with $1 million in invested assets might be sufficient today, but more is needed in the future due to the effects of inflation on purchasing power.
The Consequences of Saving Too Little for Retirement: Saving too little for retirement can lead to compromises in your lifestyle and dreams. You may have witnessed your parents, grandparents, or neighbors making such compromises:
- The 75-year-old working any job he can find because he knows he’s close to outliving his money.
- The small business owner entering her sixties with little or no savings, determined to work until she dies.
- The widow in her seventies moving in with her son and his spouse due to financial desperation and receiving only minimal Social Security benefits.
- The healthy, active couple in their sixties retiring too early and realizing their only hope of funding their retirement is to sell their beloved home and move to a less expensive area or smaller residence.
When you think of retirement, you probably don’t imagine “just getting by.” That is no one’s retirement dream. Sadly, that risks becoming a reality for those who save too little for the future. To avoid this, speak with a financial professional about your retirement plans: what you envision for your life, and what your living expenses might be. From that conversation, you’ll gain insight into how much you should be saving today for a better tomorrow.
As you can see, determining how much you need for retirement is a complex process that depends on various factors, including your lifestyle, goals, and market conditions. The key takeaway is that saving adequately and seeking the guidance of a financial planner can make all the difference when it comes to achieving the retirement of your dreams.
Krista McBeath is the founder and president of McBeath Financial Group in Normal. The firm covers all areas of financial management, specializing in retirement and financial planning solutions. For more information, you may call 309-808-2224 email: [email protected] or visit their website McBeathFinancialGroup.com
Fee-based financial planning and investment advisory services are offered by McBeath Financial Group, a Registered Investment Advisor in the State of Illinois. Tax preparation and insurance products are offered through McBeath Tax and Financial Services, LLC. McBeath Financial Group and McBeath Tax and Financial Services, LLC
Citations: investopedia.com/retirement/retirement-income-planning/ [6/7/18]
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