Should You Really Retire with $1 Million?
How much money is enough for retirement? A common piece of retirement advice is to save at least $1 million before you plan to retire. What factors into this, and is it really a one-size-fits-all budget?
Why professionals say $1 million is the ideal retirement budget
Saving for retirement depends on your expenses, age of retirement and lifestyle. Financial professionals usually recommend saving at least $1 million, to follow the “four percent rule.” This rule of thumb suggests that retirees who withdraw four percent of their retirement savings a year, plus claim their social security benefits, will be able to cover spending costs for the duration of retirement.1
How to figure out how much you need for retirement
The Bureau of Labor Statistics found that 55-64 year-olds spend on average about $56,000 a year on expenses. These expenses include housing, healthcare, food and more.2 With this in mind, if you saved $1 million for retirement, you could retire for about 17 years on a $56,000 per year budget.
To determine how much money you need for retirement, you need to take into consideration your current lifestyle and expenses. The general budget of $56,000 is the national average. Do you spend more than that each year? If so, you may need to save more than $1 million or see what costs you can cut back on. Are you spending less than $56,000 a year? If so, are there any activities, like travel, that you should budget for? Do you want to set aside savings to leave for loved ones? Keep in mind that inflation may also have an impact on your savings over time.
Creating your budget for retirement
The top three retirement expenses are housing, transportation and healthcare.3 If you have expenses like a mortgage, try to pay that off so you don’t bring debt with you into retirement. Maybe your city has a great public transportation system. Can you cut back on auto expenses or sell your car entirely?
If you’re worried about healthcare options, research the plans available through COBRA, the Affordable Care Act and the private insurance marketplace. Are you going to enroll in Medicare when you’re 65 (or older)? If so, do you know which plan is right for you? Even having a ball park figure of your expenses in retirement will help guide you toward a savings goal. Talk to a financial advisor about how you can best invest in your future.
Setting up a retirement checklist and spreadsheet with your predicted costs can help give you some financial peace of mind. The best tool for retirement is time, so start saving as early as you can.
1 Go Banking Rates (April 4, 2018). Web page: What it Takes to Save 1M for Retirement? Retrieved May 2, 2018 from https://www.gobankingrates.com/investing/how-to-save-million-dollars-retirement/#2.
2 Bureau of Labor Statistics (December 2015). Web page: Consumer expenditures vary by age. Retrieved May 2, 2018 from https://www.bls.gov/opub/btn/volume-4/consumer-expenditures-vary-by-age.htm.
3 New Retirement (December 7, 2016). Web page: The Biggest Expenses in Retirement (No One Talks About a Huge One). Retrieved on May 2, 2018 from https://www.newretirement.com/retirement/the-highest-retirement-cost-that-no-one-talks-about/.
Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc. Member FINRA/SIPC. Investment advisor representatives offer advisory services through Mutual of Omaha Investor Services, Inc.
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