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Money Matters

Sundar Mohan Rao

DURING THE PANDEMIC, I started devoting more time to retirement planning. But I had more questions than answers. I called a friend who was a financial planner.

“Retirement planning is confusing,” I told him. “I have a lot of questions.”

He laughed and said, “The answer is money. What’s the question?”

While his answer was humorous, it reflected what most retirees already know: Money is crucial for a good retirement. While it isn’t the only thing you need for a happy retirement, it certainly helps.

How much money do you need? There are many variables, including an individual’s cost of living, retirement aspirations and health, so general guidelines can be risky.

Still, we know retirement can be expensive even if you don’t travel extensively. Health care expenses continue to rise. Even general inflation often puts a squeeze on retirees’ budgets. One rule of thumb says you need 80% of your pre-retirement income to maintain your standard of living once you stop working.  

What does that mean in terms of savings? Americans spend roughly 20 years in retirement, on average, but some people will live far longer. Experts say, at retirement age, folks should have savings equal to 10 to 12 times their annual income. For instance, if your annual income is $80,000, you might target $800,000 to $960,000 in retirement savings. If you have other sources of retirement income, such as a pension, you can likely make do with less savings.

Most folks don’t come close to hitting such savings targets. According to the Federal Reserve, households headed by someone age 65 to 74 had average retirement account balances of $609,000 and median, or typical, savings of $200,000.

Ideally, you should start saving for retirement early in your career, socking away perhaps 10% to 15% of your income. To get a sense for whether you’re on track for a comfortable retirement, try playing around with HumbleDollar’s Two-Minute Checkup.

If you’ve spent many decades saving diligently, allowing yourself to enjoy those savings once retired can be a struggle. A BlackRock study found that most retirees still had at least 80% of their nest egg remaining after two decades in retirement. Uncomfortable spending your nest egg on yourself? Instead, you might use the money to make gifts to family members or to charity.

Now that my wife and I are retired, I’m hoping Social Security and my pension will be enough to cover our regular living expenses. To make this happen, we worked longer, delayed taking Social Security, downsized and cut back on other expenses. We’ll end up dipping into savings to pay for unexpected costs. But we hope such expenses will be few and far between, so our savings will keep growing, at least during our early retirement years.

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