How much money will you need to retire? That’s the million-dollar question. Is a million dollars enough for retirement, though? According to a recent study by The Motley Fool, only 52% of people age 60 and over feel financially prepared for retirement, which is a sobering statistic.
People are living longer now than they were 50 years ago. It’s not unusual for people to live until age 100+, meaning they may be retired for almost as long as they worked. Longer life expectancies mean people will need more money for retirement, meaning many people risk outliving their savings because they didn’t save, or plan, properly.
If you live to be 100, you may need to save more money, retire later, get a part-time job, rely on multiple income streams, or implement a combination of these things. Since this is not a one-size-fits-all solution, work with a financial professional to determine the best solution for you.
Consider these tips:
Don’t make macro assumptions. Don’t assume you’ll be fine with $1 million (or whatever amount you’ve saved). Consider your regular expenses and anticipated extra expenses, like travel, medical bills, gifts to children, home repairs, etc. Also, consider inflation and other risks, like “living too long.” There’s no magic number that works for everyone. Some experts recommend saving 70% to 90% of their pre-retirement income, while others suggest saving 12 times their pre-retirement salary.
Ask the right questions. When do you want to retire? If you anticipate retiring early, you’ll need more money to cover your (longer) retirement. How much do you expect to spend in retirement? Consider your expected retirement lifestyle.
You’ll spend more money if you plan to travel the world versus pursuing hobbies or local interests. Do you plan to participate in expensive hobbies (e.g., golfing, shopping, dining out regularly)? Do you plan to work, even at a part-time job?
Consider your expenses. You may have paid off your mortgage and you may not need to pay for work-related expenses like dry cleaning, parking, etc. any longer. But other expenses — such as travel, entertainment and health care — may increase. For instance, a recent study showed that older couples may need as much as $184,000 to $383,000 for medical expenses alone, depending on their Medicare coverage — an amount that’s likely to increase over time due to rising health care costs.
Develop (or refine) your financial plan. Take a big-picture view of your financial goals and assess your overall financial situation. Work with a financial expert who can build models to simulate your retirement. They can also consider estate planning, retirement income planning and business exit planning. Keep in mind, when you get to retirement, your asset base and net worth should be at their highest point. Do you (or will you) have enough money to retire? How is your money positioned to fund your retirement? If you own a business, you may want to plan an exit that allows an ongoing income. Sit down with a trusted financial advisor to evaluate your next steps and develop a personalized financial plan to help you reach, or exceed, your goals.
If you’re veering off course, right the ship. If you get off track, work with your financial advisor to determine how to fix it. Start by gathering a summary of your assets and expenses. Run some projections, which will tell you where you are relative to your goals. If you’re short of meeting these numbers, take actions to improve your finances, such as increasing your savings, reducing expenses (such as downsizing your home), etc.
Protect your money. What if you’re in a car accident and you get sued? If you don’t have the proper umbrella liability insurance, this lawsuit could drain your savings and ruin your plans for a comfortable retirement. Ensure that you have proper strategies in place to protect your assets. Other risks include disability, injury, property damage, among other things. Also, consider the impact of market returns (sequence of returns) on the early years of your retirement. The impact can be dramatic and long-lasting.
Prepare for unexpected emergencies. You also need to plan for unexpected emergencies, such as getting sick and being unable to work prior to your planned retirement. Your plan should include having proper insurance, including disability, life insurance and long-term care. Also, maintain access to cash, whether it’s in a bank, a reserve equity line or a life insurance policy. Suppose you get an unexpected illness. Go through a mental checklist, knowing that if you become disabled, you have disability insurance. If you die, your family will be protected because you have life insurance. If you’re unable to work, you have long-term care insurance. No matter what happens, you’ll have peace of mind knowing that you have the proper protections in place.
Joseph H. Guyton is principal of The Guyton Group. He has over 35 years of experience providing professional knowledge in retirement income planning, pension, profit sharing and business succession.
