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Only You Can Answer

Richard Quinn

HOW MUCH DO I NEED to save for retirement? How much will I spend in retirement? Can I live comfortably in retirement? Can I even afford to retire?

I can answer all these questions, but most likely none of my answers will be exactly right—for you. Experts tackle these questions, too, but provide inconsistent answers. Google any of them and you’ll get a range of results. Without knowing your situation, such shotgun advice is pretty meaningless.

I submit that you can’t plan your retirement based on the general assumptions and guidance that proliferate in all forms of media. The important questions—which I’ll pose in a moment—you need to answer for yourself.

How much do I need to save to retire? Fidelity Investments suggests that, by age 67, you need to have saved 10 times your annual income, but maybe only eight times if you intend to “downsize and live frugally in retirement.”

Can you retire with $1 million? To some people, this would be a dream. In theory, $1 million will generate about $40,000 a year in income—or is it $38,000, or maybe just $35,000? It depends who you ask.

Most people can add Social Security to this income. If you’re earning $80,000 a year, at 67, your Social Security income as a couple could be some $38,000. If you lived on $80,000 before retirement and have $1 million saved, can you retire on $78,000 a year? Yes, no or maybe? It depends on your circumstances and expectations.

The relatively few of us who earned a pension have it easy compared with most Americans. We have a steady income stream—just like when we worked—on top of Social Security and income from savings.

In retirement planning projections, I often see the words “frugal,” “comfortable” and sometimes “getting by.” While these words are subject to interpretation, isn’t the desired goal to at least maintain the same standard of living we had throughout our lives? Who would plan for a future where they’ll just “get by”?

Here’s another puzzler I’ve heard: There’s no need to save during retirement, right? Not in my experience. Over the past few years, like most people, I’ve paid thousands in unplanned expenses—dental care, car repairs, a child in need of assistance, even a dead tree. That cash came from emergency savings, which I contribute to each month. Yes, I’m saving in retirement. Absent that saving, I would have sold investments.

Everyone needs a saving, investing and spending strategy for retirement. As part of your deliberations, try to answer these questions for yourself:

  • Do you really want to retire? Not everyone does.
  • Do you and your spouse have the same vision for retirement?
  • Do you want to relocate—or will it be a financial necessity?
  • Will you actually change your way of life in retirement? Do you want to?
  • Do you want to spend money beyond the necessities without worrying?
  • Can you live the way you desire on 70% to 80% of your preretirement income?
  • Are you currently saving the most you can?
  • Have you seriously thought about how you invest your savings?

In answering these questions, I’d caution against using general assumptions—or planning to just “get by.” Aim higher. Perhaps a quick reality check using HumbleDollar’s Two-Minute Checkup will help.

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