Retirement is about not HAVING to work to support yourself. It’s a time where living the way you want replaces being tied to a job. And it can take a while to save up enough to achieve that financial freedom. The extra challenge comes in with all of the unknowns – like the future cost of living or how long you’ll live. That’s why planning for retirement is crucial, regardless of your age.
Two people who have exactly the same amount of retirement savings today could achieve financial independence years or even decades apart. So many factors may affect your answer to that question, from investment choices to monthly expenses to physical or mental health.
When you know which factors to prioritize as you plan for the future, you’ll have more control over when and how you achieve true financial independence..
Fortunately, you can plan for retirement at any age. Even if you’re only a few years away from it.
It all starts by figuring out the answer to one seemingly simple question…
Are You On Track to Have Enough Saved for Retirement?
It’s frustrating trying to figure out whether you’re on track for a financially comfortable retirement. With so many different models you could use and dozens of variables to consider, it’s easy to get overwhelmed and put it off.
The truth is, it’s not as difficult or discouraging as it seems. But it does involve a chunk of time and a little math. After that initial effort, you’ll just need some periodic quick check-ins to make sure you stay on the right track.
Know Your Life Expectancy
One of the biggest questions surrounding retirement savings is “How long do I need the money to last?”
Of course, there’s no definitive answer to that. But there are specific factors you can consider to come up with a realistic estimate for how much you’ll need in your retirement account.
Your expected longevity will play an important part in your retirement plan projections. It affects how much money you need overall, your safe withdrawal rate, and the best way to structure your retirement portfolio.
Start with the Average
According to the Centers for Disease Control and Prevention (CDC), the average overall life expectancy in the US is 77.5 years. That number changes a little when you break it out by gender: The average lifespan is 74.8 years for men and 80.2 for women.
Life expectancy after age sixty-five also looks different. Overall, that number is 18.9 years, so someone who’s sixty-five now can expect to live until nearly age eighty-four.
Gender makes a difference here, too. Women aged sixty-five and older have a life expectancy of an additional 20.2 years, while men can expect an average of 17.5 additional years.
Try a Life Expectancy Calculator
There are dozens of life expectancy calculators online that will give you a more tailored response than the CDC averages.
They all tend to ask similar questions (about things like current age, blood pressure, exercise, etc.), but each has its own little twist. Since many of them are free, you can try as many as you want to get a more complete picture of your life expectancy.
Here are some calculators (usually located in the Tools menu) that aren’t super invasive:
· How Long Will I Live? by Blueprint Income – www.blueprintincome.com
· Life Expectancy Calculator by Bankrate – www.bankrate.com
· Life Expectancy Calculator by John Hancock Life Insurance Company – www.johnhancock.com
· Living to 100 Life Expectancy Calculator by Living to 100 – www.livingto100.com
Know Your Nest Egg Target Number
Financial “experts” throw around numbers like $1,000,000 or $1,500,000 as retirement savings targets. The real question is, how much retirement income do you need? Instead of going with guesswork, take some time to come up with a number that works for your personal situation.
A whole host of variables will factor into your retirement needs such as:
- How old you are now and when you want to stop working
- Where you plan to live
- Whether you’ll be supporting your children or parents
- The general state of your health
- Whether you have (or will have) access to an employer-sponsored retirement plan
- How much you want to travel
All of that will go into figuring out your target nest egg.
Once you come up with that number, you can create a retirement savings and investment plan that will get you there in plenty of time.
Make a Written Retirement Plan
Most people don’t have written retirement plans, and that can make it harder to keep retirement savings on track. Putting a plan in writing does the following:
· Clarifies your goals and expectations
· Lets you know when you hit benchmarks
· Forces you to think about potential obstacles
· Considers some tax and estate planning
· Helps you refine your investment strategies
· Lets you come up with backup plans before you need them
If you’re not sure how to put all this together, think about consulting a fee-based financial advisor, the best choice for avoiding any hidden fees or potential conflicts of interest. They can help you create a flexible plan with a realistic retirement savings goal.
Set Your Target
To set your target nest egg, think about how much money you’ll need to spend every year in retirement.
When you retire, your expenses may stay pretty close to the same, or they may be dramatically different (if you move to a different area, for example). Either way, you’ll need enough money to cover taxes and your basic known living expenses: housing, food, transportation, healthcare premiums, etc. Plus, you’ll need money available to cover the fun stuff like dining out, travel, and entertainment.
Adding all of that together will give you a rough idea of the annual “salary” you’ll need in retirement. Take that result and multiply it by twenty-five or thirty years to come up with a baseline estimate of the money you’ll need to stockpile to afford a comfortable retirement.
Remember, this looks only at the expense side of your equation. It doesn’t account for reliable income such as Social Security retirement benefits or pension payouts, or strong investment returns.
Don’t Get Sidetracked by Fear
A lot of conversations about retirement bring up fears and concerns.
So many people are afraid they’ll outlive their money and be unable to afford their family’s basic needs. They worry about needing long-term care that could force them into bankruptcy.
Worrying about trying to save $1,000,000 can make you feel like there’s no point in even trying. That negativity trap can convince you that you’ll never be able to save enough or that a comfortable retirement is hopeless. But that’s just not true.
Focusing on those scary what-ifs is paralyzing. Try to reframe the conversation to focus on what a happy retirement would look like. Look at the things you can start doing now to help counter those what-ifs.
For example, if your biggest fear is going broke paying for a nursing home, look into long-term care insurance options, or start self-insuring by building up a sizable HSA (health savings account).
When you address your fears head-on, you can take action to turn them around before they disrupt your dream retirement.
Planning for Retirement Is Easier Than It Seems
When you sit down and take a realistic look at your current financial situation, you’ll have a better picture of what retirement could look like for you. You’ll also have a better grasp on all of your income sources, as well as how much you’ll have to save and how long that may take.
The good news is that retirement is totally achievable. Especially if you start right now to get your financial independence on track.
Retirement involves lots of moving parts. And there’s just not enough space in this blog post for me to talk about everything you need to know about saving for retirement.
That’s why I updated my comprehensive and easy-to-understand guide to the ins and outs of retirement planning, Retirement 101 v2.
This new version covers all of the latest information you need to create a financially secure future. I talk about everything from the Social Security question mark to new laws affecting retirement accounts to planning for inflation. Everything you need to know so you can have a stress-free retirement whenever you’re ready…whatever that looks like for you.
Click on the button below to find out more and get your copy now.