There is so much information available to people about how much to save for retirement. Unfortunately, a lot of the articles, podcasts, and videos that you can explore have one fatal flaw: They offer generic savings goals to aim for, and don’t take your unique personal finances into account.
Of course, no one blog post can give you your perfect retirement savings goal. You can’t listen to a podcast about retiring early (or retiring at all) and know exactly where, when, and how much to save. Still, it can be frustrating to see so many people set arbitrary savings goals that can be both overwhelming and not an accurate reflection of what you actually need to retire comfortably and living the life you’ve always dreamed of.
Arbitrary Saving Goals Don’t Make Sense
Raise your hand if one of these retirement savings goals sounds familiar:
- You need to save 1 million dollars by the time you retire
- Replace 85% of your pre-retirement income
- Multiply how much you’ll need each year during retirement by 25
These are just three examples of common retirement savings equations touted by experts to help guide you toward an ultimate retirement savings goal. But these goals don’t necessarily make sense for you.
The truth is that you need a retirement savings plan that’s meeting your unique financial needs – both now, and during retirement. There are so many different things that could impact your retirement savings goal, including:
- When you want to retire
- Your potential lifespan
- Your retirement lifestyle goals
- What type of legacy you want to leave behind after you pass away
- Whether or not you carry debt into retirement
- Whether or not you’ll need to help to care for aging parents or other dependents as you near retirement (or during your retirement)
Let’s dive in to how you can start to develop a retirement savings goal that meets your needs and gives you plenty of wiggle-room to live in a way that leaves you feeling happy and fulfilled during your years as a retiree.
Think About Your Retirement Lifestyle
The first thing you can do to help to build a retirement savings goal is to take a hard look at the type of retirement lifestyle you want. Although this may change over the years, it’s worthwhile to get as specific as possible when creating a plan. Some questions you might want to ask yourself are:
- Do I want to stay in my current home, or downsize?
- Do I want to travel?
- Will I be relocating to a new location – either closer to or farther away from family?
- Do I want to spend my time participating in a pricey hobby – like golfing every day, or boating?
- If not, how do I plan to spend my time?
- What type of legacy do I want to leave?
This step in the retirement planning process can be exciting and fun – don’t be afraid to get creative! Think outside of the box!
Create a Retirement Budget
With your potential retirement lifestyle in mind, you can now start to create a retirement budget that meets those needs. Think about all of your potential expenses during retirement, and consider what future medical expenses you may be facing, as well. Although we’re never going to be able to 100% accurately predict some of your retirement expenses (such as whether or not you’ll need long-term care), it’s worth at least nailing down predictable expenses (like rent, utilities, or life insurance premiums), and estimating other, less predictable, expenses.
Reverse Engineer Your Retirement Savings “Number”
Now that you know approximately how much money you’ll be spending each month (or year), you can more accurately set a retirement savings goal. When doing this, you’ll want to keep two things in mind:
- Plan for longevity. Life expectancy for Americans has been steadily rising, and with improved medical technology, that trend isn’t expected to change! Make sure that your plan accounts for a long, happy life – you don’t want to undersave and run out of money.
- Leave wiggle room. It’s tempting to zero in on a goal and fail to remain flexible. If you leave wiggle room for lifestyle changes, wanting to work longer, needing to retire earlier, etc., you’re giving yourself financial permission to live a life that’s best for you in the moment.