How Much Money Do I Need to Retire?

One of the most important retirement decisions is determining how much money you need.

Have you ever asked yourself questions like

Do I want to retire only to find out I may run out of money?
Or do I want to have to get a full or part-time job after I retire?
What happens if I am not able to work because of my health or a disability?

Most people have a variety of questions about their retirement.

Some of the most common questions include:

Is $1 million enough money to retire?
How do I ensure I won’t run out of money?
What happens with our Social Security benefit when one partner dies?
How much money is enough to last my lifetime?
How do I reduce taxes and plan for inflation?

If you want the answer to these questions, tune into today’s episode.

Summary: Wealth Inside and Out® Podcast – “How Much Money Do I Need to Retire?”

Overview of what you will learn:

>>3:04: Is $1 million enough money to retire comfortably?
>>4:20: How taxes impact your retirement
>>11:30: The first critical step when considering retirement
>>12:31: What investments have returned based on historical numbers

Hi, my name is Annette Bau (bah oo).

I’m a Certified Financial Planner™ and founder of The Millionaire Insider®.

This is the Wealth Inside and Out® Podcast.

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We share insights in this free Retirement Plan Checklist resource that many people don’t even consider. So again, you can go to Retirement Planning Checklist.

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The Importance of Retirement Planning

Retirement planning is a critical piece of your financial plan.

While many people understand this, many are uncertain about how much money they need to retire comfortably.

The question, “How much money do I need to retire?” often raises more questions than answers.

Considerations include:

Your lifestyle preferences
Expected expenses
Your and your partners health
Retirement age (will you retire in 5, 10, 20, or 30 years), or your different savings plans
Life expectancy (how long you expect to live and years of retirement). The numbers will be dramatically different if you have five vs. 25 years to fund your retirement.
Rate of return, inflation rates, and the amount you will save for retirement
Planned income at retirement including retirement savings accounts and balances

Today, we will discuss key takeaways and considerations for retiring without depleting your nest egg (the money you have saved).

Review Your Current Financial Situation

Evaluating your current financial status is essential before determining how much money you need for retirement.

Take an inventory of:

Your assets, including savings and investments
Any retirement income such as pensions. 401ks, IRAs, or Social Security benefits
The savings rates on your retirement and personal investments
Any debt you currently have

This includes determining if you will wait for your full Social Security benefits.

Understanding your current financial position provides a foundation for planning your retirement goals.

Evaluate your Spending Habits

First, you need to determine your annual pre-retirement income and expenses.

Estimating your income and expenses is crucial for determining how much money you’ll need.

Many people create a plan assuming they will spend less money in retirement. That often is not the case for successful entrepreneurs who want to do the things they put off while accumulating wealth, i.e. spend more money doing what they enjoy.

Review your current spending habits and consider how they might change in retirement.

While some expenses (such as commuting or work-related expenses) may decrease, others won’t. For example, healthcare often increases, as does traveling and entertainment.

Consider Your Retirement Lifestyle

Your desired retirement lifestyle significantly impacts how much money you’ll need.

Do you plan to

Travel frequently
Pursue expensive hobbies
Downsize to a simpler lifestyle?

Every choice has financial implications.

Factor in Longevity and Healthcare Costs

Retirees need to plan for a longer life expectancy.

By considering longevity risk, ensure your retirement savings can support you throughout your lifetime.

Don’t forget to account for inflation, as the cost of living will likely rise over time. For example, if you have to fund a 25-year retirement, inflation will be a factor you must consider.

In 35+ years, I have never had anyone share they wish they had less money for retirement.

Healthcare costs tend to rise with age. For this reason, it is crucial to budget for medical expenses. Examples include:

Insurance premiums
Deductibles
Long-term care

Funding Long-term Care

A critical and often overlooked expense is long-term care expenses.

While you may be able to self-insure, purchasing a long-term care insurance policy may be a better option.

Considerations include:

The amount of coverage
The type of policy (traditional or hybrid)
Your ability to pay for it now and in the future. Many policies become more expensive as you get older.

Please be sure to consult with a qualified specialist before purchasing a policy.

Account for Sources of Retirement Income

In addition to personal savings, identify potential sources of retirement income.

Examples include:

Pensions, 401ks, or IRAs
Social Security benefits
Dividends and interest
Rental income

You need to determine how much income you’ll receive from these sources. Your total income will help you determine how much more money you need to save and when you can afford to retire.

Use a Retirement Calculator

Many people successfully use a retirement calculator to determine whether and when they can retire. These calculators can provide valuable information and help you track your retirement goals.

Since these are often like robo advisors, they can’t consider your unique situation. If that is the case, consider hiring a retirement planning professional.

Seek Professional Advice

Consulting with the right financial advisor can be priceless.

For example, they can:

Share insight you have not considered or have overlooked

Create a plan to factor in taxes that you may not have considered
Determine the impact of inflation

Ensure your plan meets your and your partner’s goals (if applicable)

Be Flexible and Adjust Your Plan as Needed

Financial planning is an ongoing process. One of the most important factors is to ensure you adjust your plan as your situation changes.

Many factors will impact your plan. Examples include:

Life circumstances
Economic conditions
Personal goals
Tax law changes

Stay flexible and revisit your retirement strategy annually. This will help ensure that your plan will serve you for your entire life.

There is nothing fun about unplanned surprises. This is especially true when you are living on a fixed income.

Recap – “How Much Money Do I Need to Retire?”

Ultimately, the amount of money you need to retire comfortably is highly individualized and impacted by numerous factors.

Important considerations include

Assessing your financial situation
Estimating retirement expenses
Considering your desired lifestyle
Factoring in longevity and healthcare costs
Utilizing available resources
Getting professional guidance

These factors will help you create an effective retirement plan and ensure you won’t spend your golden years worrying about running out of money.

Start planning early and stay proactive to secure a financially stable and fulfilling retirement.

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