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Some people think they need $3 million to $5 million saved to retire comfortably — at least according to more than 500 investors surveyed by Bloomberg.
Retirement Tip of the Week: Don’t go by surveys or general rules of thumb to decide how much you need to retire. Do your own analysis and connect with a professional if necessary.
Many workers stress over the “right” number to save for retirement. Truthfully, nobody knows for sure what that number has to be exactly. Financial advisers do help crunch the numbers, including expenses, savings and investments rates of returns, but even still, there will be fluctuations — and there’s always the possibility of an unexpected emergency throwing a plan for a loop.
Saving $3 million or more, however, is unrealistic for most Americans. Instead of harping on a single figure, focus on present spending and savings habits and anticipate for the future (even if it’s just big picture estimates at the moment).
Want more actionable tips for your retirement savings journey? Read MarketWatch’s “Retirement Hacks” column
How much a person needs to save for retirement is highly dependent on numerous factors. The survey backed this up: how much an investor thought she needed varied by location, Bloomberg reported. It makes sense. The cost of living is not the same for a retiree in New York City as it is for someone in a small town in Indiana or Wisconsin. Tax liabilities also vary by state, since some have income taxes and others don’t tax retirement money.
But your hometown is also only one piece of the retirement calculations (even if it is a big one). Everyone spends differently – on groceries, utilities, entertainment, medical expenses, gifts to family and friends, vacations, pets, hobbies, transportation and so on.
If you’re still years away from retirement, trying to pinpoint how much you’ll spend decades in the future may not do you much good, because anything could change (just look at inflation the last year, or pretty much everything that happened in 2020). For those closer to retirement, start zoning in on what you spend in all of these categories, and anything else pertinent to you, and build a budget.
How much does all of that cost for the whole year? And how much money do you think you’ll be bringing in while you’re retired, excluding your own savings? Take into account any pensions and Social Security, or part-time gigs you might hope to work. Try not to rely on the latter, or an inheritance for that matter, as those aren’t figures you can guarantee, but it doesn’t hurt to run the numbers including and excluding them.
Have a question about your own retirement concerns? Check out MarketWatch’s column “Help Me Retire”
Also, be flexible. All of these numbers (and I mean all of these numbers!) could change in a few years, one year, or even a day.
Retirees can withdraw assets in all sorts of ways. Some choose to take money out of a retirement account in one lump sum, while others might take monthly distributions. But compare your expected annual expenses to your total balance and see what percentage it is. For example, are your expenses about 2% of your balance? Or are they closer to 10%? That will give you an idea of how fast you would be depleting your account.
Keep in mind, your balance will fluctuate year to year with the market depending on how it is invested — it’s best to talk to a qualified financial professional, such as a certified financial planner, or at least someone at the firm housing your accounts, so you can get an idea of how all of these moving parts work together. Vet the financial professional you work with, and ask if they are a fiduciary because those individuals are required to act in your best interest.
Having an ultimate goal is always a plus, since it will help you determine how much to save every month or year, but focusing solely on one number isn’t always a good thing. That number could drastically change, for better or worse, so instead strive to be prepared and be willing to change as your circumstances do.
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