In my time working as a financial advisor, the most asked question was, how much money do you need to retire comfortably? Sorry to tell you this, but that’s the wrong question. The real question is about how you want to live in retirement. What does your ideal retirement look like?
Another consideration is at what age do you want to retire? Retiring early means you’ll be retired longer, which requires more money. Where do you want to live? Moving could change your living expenses and impact how much savings you’ll need. What about your lifestyle? Retirement comes in many shapes. Some retirees like to travel non-stop, and others want to spend time at home with the grandkids. It’s this last one, lifestyle, that’s one of the most significant factors in planning retirement, and also one of the most difficult factors to project.
How much money do you need to retire comfortably? Let’s figure out what that means.
People like to think they know what’s coming. They’re usually wrong. People also like to think they know what will make them happy. Again, they’re often wrong. Think about all the people with college degrees designed for careers they no longer want.
Our desires might change. The best we can do is to plan for what we know and over-prepare. Begin thinking about the different things that will add to your expenses. Accounting for everything is a challenge, but with each added item, you get closer to reality. As we’ll see, retirement costs can compound quickly. How much money do you need to retire comfortably? Consider our tips below to find an answer that fits your life.
Cost of living
Unfortunately, you’ll necessarily need to leave this vague. The ambiguity makes it harder to plan for, but not impossible with a little bit of research. If you know where you want to live, that will help you plan for your monthly and annual living expenses. If it’s hot, for example, you’ll be using more electricity for air conditioning. Don’t underestimate any possibilities.
Too often, people plan for lower costs because they think they’ll be at home making dinner every day. That gets boring. Most people will go out a lot. Whether that means day-trips or vacations, it almost always involves eating out regularly. Eating out raises your cost of living in a hurry, and that’s only one added expense of your new activities.
Your family members are the most important people in your life. You’ll jump to help them without thinking twice. Unconditional love is a beautiful sentiment, but it can become a financial burden. The only guarantee is that anything could change. As siblings, parents, and grandchildren grow older, their circumstances change the same way yours do.
There is no telling when or if somebody close to you will have an emergency. The ideal outcome is that nothing comes up, then whatever money you set aside can be spent on yourself or saved for the next generation. Hope for the best, of course, but plan for the worst. At least that way, you aren’t caught unprepared.
Renovations and improvements
You live with your home every day, and you may decide you want to make some improvements or install new kitchen cabinets or renovate that first floor bathroom. Like with planning for family events, if you don’t create a separate fund for these possibilities, you will dip into your standard of living for these expenses.
As with every other pot of money and source of income, you want to over-prepare. It is better to have too much money and a choice of what to do with it than not enough money and a choice of what you’ll have to give up.
By no means is this an exhaustive list of considerations for retirement expenses. Instead, it is a glimpse into the costs you might not be thinking about. It is difficult and may be impossible to consider everything, but trying to tally your needs guarantees that you’ll be on the road to the retirement you want.
How much money do you need to retire comfortably? Will you begin making lifestyle changes to help meet your needs?