As a guy in his mid-forties, the thought of how much money I need to retire gains more importance with each passing year. Even after reading quite a bit on the subject, when that question goes through my mind, my first answer is, “How would I know?”
Based on what I’ve read, the amount varies. Some state that you’ll need 60% of your current income, and some say 80%. I’ve even seen estimates stating that you’ll need over a million dollars to enjoy your retirement years!
Quite frankly, focusing on hitting a percentage of your current income seems a little ridiculous. After all, your current income level is relative. Your income in your mid-twenties will, more than likely, differ drastically from your income in your mid-forties. How could one rationally base a proposed retirement dollar amount on this ever-changing number?
When thinking about how much you’ll need for your retirement, there are a few things to consider beyond a percentage of your current income. I see the following factors as key to determining how much you’ll need for your sunset years.
Key Factors to Saving for Retirement
1. Visualize Your Desired Retirement
Rather than focusing on an exact dollar figure that you think you’ll need, why not focus on the kind of retirement you want to have? For me, deciding on the lifestyle I wish to enjoy during retirement is more important than any particular dollar amount.
- Picture the Future. Do you envision trips around the world? Lavish vacations? Expensive cars and beach homes? If this is what you want your retirement to be like, then you’ll need to be more aggressive with your savings strategy. On the other hand, if you visualize a retirement enjoying the more simple things in life, while still living frugally, you can relax a little and focus on saving as much as you can without stretching your budget.
- Be Realistic. Make sure that, whatever your vision is, it is in line with your current saving capabilities. If your income is budgeted to the max, saving modestly for retirement, that yacht is most likely not going to be in your future. However, if a lavish retirement is a big priority for you, don’t give up. Take a second job or focus on moving up the corporate ladder. Just understand that you’ll have to work a little harder to reach your goal.
2. Save Until It Almost Hurts
One phrase that you hear quite often in regard to saving for retirement is “save until it hurts.” Well, I respectfully disagree with this notion. During your working years, you should save for retirement until it almost hurts.
This is a key distinction. “Saving until it hurts” implies that you need to make some pretty big sacrifices in order to save more for retirement. Why would anyone want to do this? What if you “saved until it hurt” your entire life, only to find out that you had more than enough money to spend once you retire? Keep the following in mind:
- Find the Right Balance. You should save until it almost hurts. Personally, I’m not willing to sacrifice certain things during my working years in the hopes that I may have a few extra dollars to spend when I retire. Figure out what is important to you in the here and now. Then, find the best retirement planning and investing options, and put away as much as you can without affecting these priorities.
- Enjoy What You’ve Worked for. Remember, you can’t take it with you. It’s important to focus on the future, as long as you’re not missing out on the present. This applies after retirement as well. My parents are currently retired, and are quite concerned that they won’t be able to leave “enough” money for me and my siblings. They continue to worry, even though we’ve told them time and time again that we don’t need anything from them! I want my parents to spend every dime they’ve saved and enjoy their retirement to its fullest.
Putting a set figure on the dollar amount you think you’ll need for retirement is almost impossible. There are far too many variables involved to take that approach. Rather, you should seriously consider how you envision your retirement years, and save as much as you can without affecting your current lifestyle. Whether you want to go “all out,” traveling the world or settling in some exotic location, or enjoy a more frugal retirement, look at where you are now and plan accordingly.
What steps are you taking to plan for retirement?