There's one thing you're certain of: you want to retire as soon as possible. Nonetheless, the prospect of calculating (and recalculating) exactly how much money you'll require to make it happen can be overwhelming. Concerns about how much is "enough" to save, how to catch up if you haven't been saving money, and what changes you can make right now to increase your nest egg are all common concerns for many people. This exciting next step should not be taken lightly, and preparations for it should begin as soon as possible. After all, you've been preparing for this moment your entire life.
Asking Yourself These Ten Questions as You Approach Retirement
What was once only a pipe dream is now getting closer to becoming a reality. It's critical to have a clear picture of what you want your retirement years to look like before making the big decision to leave your job. As you crunch the numbers to figure out how much money you'll need for retirement, keep these questions in mind.
When do I intend to take my retirement?
Where will the funds for my retirement come from?
Which option will I choose: staying in my current home, downsizing, or relocating to a retirement community, senior apartment, or assisted living facility?
When I think about my golden years, what kind of lifestyle do I envision?
In what year do I intend to begin receiving Social Security benefits?
What are my medical requirements, and how do Medicare and Medicaid fit into my overall health care strategy?
What amount of money will I spend each year is a mystery.
In what amount of money do I have in my emergency fund?
Do I intend to work a part-time job to supplement my income?
Do I have a realistic retirement budget as well as a detailed spending plan for my golden years?
Pro Tip: Make a formal written agreement. Creating your personalized retirement plan will assist you in not only visualizing your goal, but also in staying motivated and on track to achieve it.
Sources: Boston College's Center for Retirement Research and the United States Census Bureau
Sources: Boston College's Center for Retirement Research and the United States Census Bureau
Important Guidelines for Investing in Retirement Savings
There are a number of widely used methods for determining how much money you will require to live comfortably in retirement. Retirement rules of thumb save us from having to guess whether or not we will have enough money in retirement. So, which rule of thumb is the most appropriate for you? As each person's retirement aspirations and plans are unique, use one (or a combination of) of the methods listed below as a starting point. However, before you jump in and choose a rule of thumb, make sure you're setting yourself up for success by putting together a comprehensive retirement plan. The 10 retirement questions listed above will assist you in developing a clear picture of your assets, where they came from, as well as your plans for how and when you will use your money.
There is a rule that says "ten times is enough."
This rule of thumb emphasizes the importance of saving ten times your pre-retirement income by the age of 67 in order to maintain your current standard of living. The key is to increase your retirement savings in accordance with your age as you get older. When you reach 50, you'll want to save six times your pre-retirement income. At 55, you'll want to save seven times, at 60, you'll want to save eight times, and the ultimate goal is to save ten times when you reach 67. 1
The 80 Percent Rule is a rule that states that 80 percent of everything must be used.
According to the 80 Percent Rule, a person who earns $100,000 per year will require $80,000 per year after they reach retirement age.
2 It is important to remember that this method takes into account the money you will not be spending during retirement. Once your job is over, there will be no need for you to worry about any work-related expenses such as gas, tolls, or purchasing business attire (and getting them dry cleaned). Standard payroll deductions for your retirement plan, as well as Social Security payroll taxes, are no longer available.
Keep in mind that your Social Security benefits are still available. The methods described above do not take into account the Social Security benefits you will receive after reaching the age of 62,3 so be sure to find out how much you will receive each month.
This is referred to as the "Four Percent Rule."
Consider your overall retirement savings when planning for your future. Another important consideration is how much you'll be able to safely withdraw from your account each year in order to avoid running out of funds. Using your combined retirement savings (401k, IRA, pension, and other assets), estimate that you will need to withdraw four percent of that total on an annual basis. For example, if you have a total of one million dollars in retirement savings, you can withdraw $40,000 per year from your account.
What Sources Will My Retirement Fund Draw Money From?
Depending on how you invest for retirement, you will be able to determine where your money will come from after you retire. A retirement portfolio that is well-diversified includes money from a variety of sources. Your retirement funds should be diversified, ranging from cash savings to retirement accounts, pensions, and Social Security4 benefits. According to the Social Security Administration, retirement beneficiaries receive Social Security benefits that account for approximately 40% of their pre-retirement income. So, how do your retirement savings stack up against our hypothetical combined income graph shown below?
Source: Based on Social Security data, SeniorLiving.org developed this chart.
Source: Based on Social Security data, SeniorLiving.org developed this chart.
What steps can I take to start saving money right away?
When you are faced with day-to-day expenses, unexpected medical bills, cost of living increases, and other obstacles, it can be difficult to save consistently for retirement. If you're an older adult who feels like you're falling behind on your savings, don't freak out. There are numerous changes you can make today to increase your retirement savings, both small and large in scale.
Investing
Are you putting enough money aside for your retirement? In 2022, you can make your maximum standard retirement contribution, or you can invest as much as you can each year. Each year, you have the option to invest up to:
A 401(k) or 403(b) plan will cost you $19,500. (b)
A SIMPLE 401(k) will cost you $13,500. (k)
$6,000 for a retirement account
Are you prepared to play catch up? If you are 50 years or older, the Internal Revenue Service allows you to make annual catch-up contributions5 (in addition to your standard retirement contributions).
Make an additional $6,500 contribution to your 401(k) or 403(b) plan (b)
Make an additional $3,000 contribution to a SIMPLE 401(k) (k)
Make an additional $1,000 contribution to your IRA.
Lifestyle
Changing your day-to-day spending habits can have a significant impact over time. Keep track of how much money you're saving as a result of making changes to your lifestyle.
Reduce your reliance on eating out and food delivery services by channeling your inner chef.
Instead of getting a cup of coffee at the drive-through, brew your own at home to save money.
Take advantage of a staycation to avoid the stress of traveling.
Pack your lunch for the office in a brown bag.
When shopping, ask yourself if you really need something or if you just want it.
Finances
Take a close look at where each and every dollar is spent. Get the most for your money: Are you getting the most for your money?
Take advantage of senior discounts to save money when you shop.
Credit card debt should be eliminated in order to avoid overspending and high interest rates.
Downsizing saves money on monthly payments, utilities, and repair costs by purchasing a smaller home.
Check around to make sure you're getting the best possible rates on your homeowners and auto insurance.
Examine your technology: consider upgrading your cell phone or internet plan.
Keep an eye on your interest rates and consider refinancing your mortgage if the time is right.
Andrew Meadows, Senior Vice President of Human Resources, Brand, and Culture at Ubiquity Retirement + Savings, shared some of his best retirement-saving advice with us. "The most significant savings can be realized through a change in your lifestyle," says Meadows. "Did you know that most utility companies have special programs for senior citizens?" By asking a few key questions, you may discover that you are paying significantly less for your phone, internet, and other expenses that appear to be high at the moment. The majority of large technology and internet providers have programs that are tailored to the needs of older customers. Look into saving money on something you do every day right now!" Making a few quick phone calls to your service providers is a simple and effective way to save money. Trying something new never hurts, and you never know which companies might be offering a special deal for senior citizens.
Health
Maintaining your health is a long-term investment in your well-being. Consider the savings you'll make on medical expenses as well as the money you'll save on unhealthy expenses by taking better care of yourself.
Consume healthfully: limit your intake of processed foods and red meat.
Increase your activity level by getting at least 15 minutes of exercise every day.
It's all about prevention: make sure to keep up with your routine medical and dental exams.
Purchase locally grown produce by visiting farm stands and farmers markets.
Quit smoking and consuming alcohol, among other harmful habits.
Did you know: According to the Centers for Disease Control and Prevention, smoking-related illness costs the United States more than $300 billion per year?
6 Cigarette smoking is bad for your health, but it's also bad for your wallet. It is estimated that one pack of cigarettes costs on average $6.28, according to the National Cancer Institute. Smokers who smoke a pack a day spend $2,292 per year, money that could be put into a retirement account.
While retirement planning can appear to be a daunting task, and you may believe that you require the assistance of a professional, this is not always the case. "Everyone's retirement savings number will be different," Andrew Meadows points out. Sometimes, when we reach retirement age, it is the first and only time we require advice. No longer should you be concerned about having to find an advisor because some of the best advice can be obtained from family and friends now that you've arrived. Look for people in your life who seem to have it all figured out and ask them what they did to get there. Sharing important information with those you care about that could help them improve their lives is a wonderful feeling. Having a conversation with your loved ones and gaining a fresh perspective on things may be beneficial in developing the best retirement plan for your specific needs and goals.
How Can I Make Certain That My Retirement Savings Will Survive?
Once you've officially retired, the goal is to put the stress of your working life behind you. Follow these practical suggestions to make the most of your nest egg. Make sure to account for inflation: don't forget about the cost of rising prices. Before you retire, make sure to account for inflation in your retirement years because the cost of living will continue to rise.
Were you aware that the Social Security Administration has been providing recipients of Social Security benefits with payments that are annually adjusted for cost of living since 1975?
Don't begin collecting Social Security too soon into your retirement: the longer you wait until you reach the age of 70 before beginning to collect Social Security, the larger your monthly benefit will be. Keep in mind the four percent rule of thumb: every year, take four percent of your total retirement savings and put it into an IRA. Make the switch to a one-car family to save money on car payments, gas, maintenance, and insurance. Understand the property tax laws in your town: you may be eligible for a reduction in the tax-assessed value of your home or an exemption from paying property taxes. Work part-time: Having a part-time job after retirement has numerous advantages. Working part-time can provide a sense of purpose in addition to providing a source of income, as well as expand social opportunities and increase physical activity levels. Make certain that your income will not have an impact on your Social Security benefits.
