By David J. Blount, CFP®
LPL Financial Advisor
A key part of retirement planning involves answering the question “How much do I need to save to retire?” Determining this number can vary based on your preferred lifestyle and specific goals. Experts suggest planning to spend between 55-80% of your pre-retirement annual income per year during retirement. However, it’s important to consider your own personal goals and expenses when determining your potential number for retirement. Factors like location, travel, and other lifestyle choices can impact your future costs. Our team at Investment & Insurance Planning Services has compiled the following questions and insights to help you think through your unique situation to come up with the number that’s just right for you.
What’s Your Ideal Retirement Date?
Your age (now and in retirement) is one of the most significant factors to consider when determining how much money you need to save. If you want to retire early, you’ll have fewer years to save for a longer retirement. And if you start claiming Social Security benefits before full retirement age, you’ll also have to factor in a smaller monthly benefit amount.
The state of the stock market can also play a role in how much money you need and how long your money lasts. A Vanguard study found that you have a 31% higher chance of running out of money if you retire near or during a bear market. Of course, you have no way of knowing if we’ll be in a bear or bull market when you retire—but this is a scenario you must account for in your retirement planning.
What Do You Want Your Retirement Life to Look Like?
Have you thought about the type of lifestyle you want to have in retirement? If you know you want to travel, play golf, or spend time with your grandkids, you need to factor in what that looks like and how much it will cost.
For example, if you plan to travel, you’ll need to consider:
Will you be traveling stateside or internationally?
How often do you want to travel?
How would you like to get there? (e.g., car, plane, or RV)
Where would you like to stay? (e.g., 5-star hotel, Airbnb, with family members)
Will you be traveling with your family? Would you like to cover their expenses too?
Will you maintain your primary residence? If so, who will watch your house and maintain it while you’re gone?
Even if your dream is simply to spend time with your grandkids, you’ll still need to think through your expectations and expenses. To some people, “spending time with grandkids” means babysitting a few times a week. To others, it means footing the bill for all-expenses-paid trips to various destinations of their choosing. Whatever it is you want to do with your time, map out the details so you can have a clear picture of how much you’ll need to make it a reality.
Will You Earn an Income in Retirement?
Working during your retirement is a great way to stay active, keep your mind sharp, and maintain a sense of purpose. Some retirees choose to build a second career through consulting. Others decide to pick up a low-stress, part-time job at a family office or retail store. No matter what you do, if you plan to work during retirement, you won’t have to save as much to live comfortably.
How Much Debt Do You Carry?
Bringing debt into retirement has two major drawbacks:
It reduces the amount of cash flow you have for housing, travel, hobbies, and other non-essential purchases.
It can potentially drain your retirement savings quicker, which means you may run out of money or have to adjust your lifestyle down the road.
If you carry debt, take a close look at what you owe and figure out how much cash flow you’ll need in retirement to cover these expenses. Some people prefer to pay off any high-interest consumer debt before they retire. Others will take it one step further by paying down their mortgage and auto loans too.
What Kind of Healthcare Coverage Do You Expect to Have?
Right now, you most likely have health insurance through your employer. When you stop working, you’ll need to have a plan for healthcare coverage another way. You may be able to hop on your spouse’s plan, if he or she is still working. Or you can get coverage through the healthcare marketplace. You qualify for Medicare starting at age 65, but even then, you may want additional coverage to pay for prescription drugs, dental care, eye exams, and other expenses.
Retirees sometimes fail to fully plan for expenses during the later stages of retirement, and medical care often tops the list. It’s estimated that retirees will use 15% of their income for health expenses, and the average retired couple could see healthcare expenses of approximately $300,000 after age 65. Don’t let this be a planning oversight that prevents you from retiring comfortably!
Will You Have Any Dependents?
Your kids may be grown and out of the house by the time you retire, but that doesn’t necessarily mean you’ll stop supporting them financially. Over 79% of parents said they still give financial support to their adult children (ages 18 to 34), according to a Merrill Lynch study, and the COVID-19 pandemic caused a boomerang effect, with 67% of adult children still living at home with their parents after returning home in need of financial help.
And even if you aren’t helping your kids out with daily expenses, you may want to contribute to their weddings or down payments on home purchases down the road.
Where Will You Live?
Housing may be your biggest expense in retirement. And even if your home is paid off, you might want to consider downsizing to a smaller place that requires less maintenance and has cheaper utility costs.
To save even more, you can think about relocating to an area that has an overall lower cost of living. For example, the cost of living in Orlando, FL, is only 3.3% higher than the national U.S. average, whereas the cost of living in Los Angeles, CA, is 76.2% higher than the U.S average. As you can see, where you live can make a huge impact on the overall cost of retirement.
What Is Your Family’s Health History?
The average 65-year-old man has a 35% chance of living until age 90; that rate goes up to 46% for a woman the same age. And while life expectancy is unpredictable, if your family has a strong history of living to age 90 and beyond, your chances may be even greater than these odds. In this case, you’ll need to determine if your planned retirement savings will last long enough.
Similarly, if you have known health conditions and/or a family history of health problems that could affect your life span, you’ll want to consider this too.
Create a Plan to Match Your Unique Needs
While it would be convenient if there were a simple formula for determining the amount needed for retirement, the reality is that it requires a thorough examination of your financial situation, family history, and goals.
At Investment & Insurance Planning Services, we aim to simplify financial management and tailor our approach to your individual needs. Our goal is to provide you the confidence to make informed financial decisions for your future, while also taking care of your finances with integrity. By partnering with us, you can have a personalized retirement plan and a path towards financial security. If you’re interested in working with a financial planner who can help you balance your lifestyle goals with financial stability, please reach out to schedule a complimentary call to see if our services are a match for your needs. Contact us today at service@davidblountIIPS.com or (407) 542 -3249. You can also send us a message here.
David is President and CEO of Investment & Insurance Planning Services, LLC (IIPS), an independent and fee-based firm that helps clients establish their financial goals and creates custom financial plans to help them meet those goals. They specialize in working with pre-retirees, individuals in a career transition, L3 Harris engineers, and JetBlue pilots. David’s motivation comes from seeing his clients pursue and achieve their goals. He says, “It’s very rewarding to help people make successful transitions from one career to another, start a small business, or retire.”
David received his bachelor’s degree from Troy University, and prior to becoming a financial planner in 2000, he had a nine-year career in the United States Coast Guard. He obtained the CERTIFIED FINANCIAL PLANNER™ designation in 2007. He has served as the guest financial expert on Orange Television’s Adult Lifestyle Magazine Show and frequently provides financial and retirement planning workshops. Outside of work, he enjoys spending time with his wife, Michelle, their two kids, Ryan and Alana, their dog, Jack, and visiting with friends. An avid outdoorsman, he enjoys fishing, hiking, exercise, and as a committed person of faith, he enjoys attending church and is passionate about helping people in his community. To learn more about David, connect with him on LinkedIn.
This material was prepared by a third party.
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