By Michael Donahoe, CFP®
Just as no two snowflakes are alike, no two comfortable retirements are going to look exactly the same. First of all, “comfortable” has different meanings to different people. Your version of a comfortable retirement won’t look like your friend’s or neighbor’s. You might be planning to spend your golden years close to your hometown, near family and friends. Or maybe you want to travel the world or move to a warm, sunny climate. Whatever your retirement goals, it’s important to have an idea of how much they will cost you. Consider the following questions when determining your magic number for your unique retirement.
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. (1) 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.
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. (2) 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. (3)
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 Portland, ME, is 8.2% higher than the national U.S. average. (4) But move just 15 minutes north to Falmouth, ME, and the cost of living jumps to 33% above the U.S. average! (5)
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. (6) 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.
Your Unique Retirement Needs a Unique Plan
Wouldn’t it be nice if you could just Google, “How much do I need for a comfortable retirement?” and plan accordingly? To apply to your unique situation, your magic number requires a deep dive into your financial situation, family history, and goals.
We at Harvest Asset Group strive to simplify financial management while prioritizing understanding your unique needs, including how much you need to save for your ideal retirement. We focus on building and sustaining your personal wealth through partnership, guidance, and education so you can be more confident in your financial decisions. Share your anxieties with us; we’ll help shield your wealth while you live within a personalized retirement plan.
If you’d like to partner with a financial planner who can help you find the right balance between enjoying life and safeguarding your nest egg, call us at (207) 775-1151 or email us at firstname.lastname@example.org.
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.
(6) https://www.rate.com/research/news/retirement-expectancy#:~:text=Age%2090%20isn’t%20some,woman%20the%20 odds%20are%2046%25