Am I Saving Enough For The Retirement I Want?

BY JOSEPH VEDARTE, CRPC

There’s no one-size-fits-all answer. These four steps can help you figure out the amount that’s right for you.

Ask three retirement experts how much you need to save for retirement, and you’ll likely get three different answers.

One might respond with a specific number, say $3 million; another might suggest you save enough to let you draw down 80 percent to 90 percent of your annual pre-retirement income every year; and a third may say you should strive for 12 times your pre-retirement salary. So what’s right for you? And how do you know if you’re on track?

As you seek answers to those questions, the following steps can help you identify a sustainable savings target, one designed to support your desired lifestyle over a retirement that could last 30 years or more. Knowing that can be useful in figuring out whether you need to adjust your current savings and investment plan.

Ask yourself: How long could my retirement last?

“There are multiple personal variables to weigh when starting to think about how much you’ll need to save for retirement,” says David H. Koh, managing director and senior investment strategist, chief investment office, Merrill and Bank of America Private Bank.

Your current age may be among the most important. Especially if you’re young and in good health, your retirement may last several decades, he notes. No matter what your current age is, however, you may find that you end up retiring earlier (or later) than expected based on unforeseen circumstances. Either situation could affect the number of years you will need to rely on your assets for income, and it’s important to plan for those possibilities.

Picture your perfect retirement.

Having a clear idea of the sort of lifestyle you want in retirement will help you estimate how much it could cost annually. Start by thinking about your essential or non-negotiable regular expenses, such as a roof over your head, food on the table and out-of-pocket healthcare expenses. Then consider expenses that are important to your lifestyle, which might be anything from dining out and regular travel to offering financial support to aging parents or helping adult children or grandchildren with education.

Keep in mind, too, that some essential expenses—such as your own healthcare spending—may increase in retirement, while your retirement lifestyle may shift as you age.

Finally, consider any aspirational or discretionary goals you may have like purchasing a second home or pursuing certain philanthropic activities during retirement. Just as you juggle and prioritize competing goals when you’re younger, you’ll need to do the same in retirement.

Review how much you already have saved.

Once you have a target annual income figure in mind, take an audit of all of your anticipated sources of retirement income (retirement accounts, Social Security, possibly a pension, annuities, rental income and an inheritance or sale of a business) and calculate how much you could potentially draw from them once you retire.