Saving for Retirement
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When saving for retirement, it can be hard to know how much is enough. New data shows people should have nearly $2 million in savings before being able to retire comfortably. However it’s not one size fits all. Local financial professional Barry Bigelow from Great Waters Financial has tips to determine the right savings amount for your unique retirement dreams.
An old adage in the financial world claimed $1 million dollars was a good goal to have in mind for retirement, but that’s oftentimes not enough anymore. A recent survey found $1.9 million to be a more accurate amount. Something to keep in mind, though, is a set number like $1.9 million has a lot of assumptions built into it. The amount of savings people need for retirement vary depending on many factors, including what lifestyle they want and the ROI they’re getting on their investments. It’s not about what your savings balance is, but rather how much income you’re building.
Your retirement balance, be it $100,000 or $1 million dollars, is not designed to sustain your entire retirement. When entering into retirement, it’s important to have a stream of income to cover your expenses. You’ll need to earn money in retirement, only instead of working for a paycheck, your investment portfolio, pensions, Social Security dollars and annuities should provide a stream of income. Rather than getting fixated on a certain number for retirement, consider how you can leverage your savings to create a sustainable income.
When saving for retirement, there are a few factors people should consider. The first factor is to consider your lifestyle. First, determine the type of lifestyle you want to live when you retire. Do you want to travel a lot? Do you want to own a classic car or winter home? Do you have any hobbies you want to invest in and pursue? Nearly 70% of Americans dream of traveling in their retirement, which can cost over $11,000 each year on average. Take note of the extra expenses your lifestyle choices will bring about, like extra gas for travel, gym memberships, or supplies for a hobby.
Second, you need to take inventory of all your necessary expenses. Basic living expenses such as heating, electricity, groceries, health insurance, gas and taxes will all need to be covered in retirement. If you’ll likely still have debt and mortgage payments in retirement, make sure to calculate those costs into your expenses as well.
Next, you should remember to take into account inflation. Inflation shouldn’t scare you out of enjoying retirement, but it’s important to consider how your dollars will be impacted down the road. Inflation typically rises 3% each year in the United States, so it’s important to consider how far your nest egg will stretch over time. Right now, however, we’re experiencing record-high inflation, with gas lingering near $4 per gallon and food prices increasing by 8.8% over the last year. To combat inflation, try to pay down your debt now rather than later, when inflation is even higher and your dollars don’t have as much buying power.
Once people have considered these factors, they should get started on saving in a few different ways. Make sure to start saving early and keep at it! Setting up automatic contributions to your retirement accounts will help you stay consistent at saving. Time is the best tool for retirement planning, so even if you can only contribute $50 a month on your current income, start putting as much as you can into your retirement account and let it grow with time. It’s best to consult a professional on the right retirement planning strategies for your unique situation, because no one has the same retirement dreams or expenses to account for.
If you have questions about saving for retirement, Great Waters Financial is a great resource. Make sure to follow them on social media.