One of the top reasons clients come to WealthChoice is for guidance on how to prepare for retirement. And one of the first questions we are asked is “how much do I have to save to retire?”
It doesn’t matter whether you are a businesswoman at the beginning of your career, in the thick of it, or nearing what you hope to be the end of it, knowing if you are on track allows you to make any necessary adjustments to savings before its too late.
While we have access to financial planning software that helps us determine if a client is on track, we thought it would be helpful to share a few different ways folks can get a rough idea of where they are in terms of saving for retirement. In a recent Wall Street Journal article on the topic, it was determined that people are more likely to be successful planning for retirement if they tracked their savings progress. We absolutely concur, and we’ve shared several of the article’s points below:
HOW MUCH DO I NEED? THE 80% RULE
Start with determining how much you want to spend in retirement. The 80% rule assumes your lifestyle in retirement will cost 80% of your current cost of living. So if your lifestyle costs $100,000 now, this assumes it will cost $80,000 in retirement.
Subtract from this amount your estimated Social Security benefit. You can check this by going to ssa.gov and creating an account that will show you your benefit. In our example, if your benefit is $35,000, this leaves $45,000 you will need to save for.
AM I ON TRACK? THE RULE OF 72
Let’s say you have $560,000 saved and you need to have $1.125million. You can use the Rule of 72 to determine how long it will take for your money to double in value. If your portfolio returns on average 5% annually, divide 72 by 5, which is 14. This means that it will take 14 years at 5% for your current portfolio to double in value. However, this calculation doesn’t include additional contributions and its unlikely any portfolio will have consistent returns…
HOW ABOUT A RETIREMENT CALCULATOR?
There are several retirement calculators that will give you an idea of how much you need and if you are on track. Two you can try are: NerdWallet, and Kiplinger’s. Multiply the number you need to save for (in this case $45,000) by 25. This $1.125 million is the total amount you need to save in order to safely withdraw 4% each year.
These tools provide very rough estimates, but for folks who want a quick, broad take on where they are, they offer that. And, as mentioned in the Wall Street Journal article, frequent tracking leads to better outcome, since it offers the opportunity to tweak your steps if you need to. A customized financial plan based on a person’s individual goals, needs, and wants, will yield a more targeted approach.
If you have questions about how we help our clients prepare for retirement, contact us.
