Retiring from a millionaire isn’t all it is. A million dollars seems like a lot of money, but if you stretch it over a few decades, you really don’t get that far. If your goal is to retire comfortably, you need a better plan than just aiming for this arbitrary savings goal. This is why.
Why Saving $1 Million May Not Be Enough for Your Retirement?
Spreading $1 million over 25 years of retirement will leave you with a budget of only $40,000 per year. Combined with Social Security and possibly a pension, that could be enough to fund a comfortable lifestyle today. But many people will not retire in the coming decades.
Inflation will continue to drive up costs, and years later, $40,000 won’t buy nearly as much as today. In addition, most employees do not qualify for a pension, and Social Security trust funds are nearly exhausted. This could lead to a reduction in benefits in the future.
People also read…
All of this suggests that today’s workers will need more savings to cover their retirement costs, especially if they plan to retire for a long time. You may need $2 million or even more, but making $2 million from your retirement savings goal isn’t much better than a $1 million savings goal. If you want to make sure you save enough, you need a personal retirement plan.
How much should you save for your retirement?
There are a few ways to estimate your retirement costs. One of the simplest is to save 25 times your annual salary. This should make your money last for at least 30 years, but it may not work that way. If you plan on making a lot of major purchases or traveling a lot when you retire, you’ll want to build a buffer in your budget for these expenses.
You can also estimate your retirement costs by thinking about what your estimated annual costs might be and how many years your retirement will last. Multiply your estimated annual expenses by the number of years of your retirement, adding 3% per year for inflation. If that sounds like too much math, a retirement calculator can do the hard part for you. It also tells you the amount you need to save per month (and in total) to cover these costs. Again, you may want to incorporate a pillow if you are planning major purchases.
Remember, you probably won’t have to fund your retirement on your own. Many employees qualify for Social Security, and if you are married, your spouse may also receive benefits. You may also get a 401(k) agreement from your employer.
Try to estimate how much you will receive from these sources and subtract it from your total savings goal. For example, if you think you need to save $600 a month and you get $100 a month as an employer 401(k) match, then you only need to save $500 a month.
If your savings goal seems out of reach, there are a few things you can do. Try to find more money to retire first. You could try cutting costs, starting a side job, or aiming for a raise.
If that is not possible, deferring retirement can work. It’s not ideal, but even a few months of delay can make a big difference. This gives you more time to save and also shortens the duration of your pension.
Delaying Social Security can also help, as you avoid increasing your benefits every month after you reach full retirement age until you turn 70. If you expect to live into your 80s or older, you’ll probably get more money overall by waiting to sign up than by starting as early as possible. But if your health isn’t the best, starting earlier is probably smarter. You can estimate your Social Security benefits at different starting ages by creating a My Social Security account.
Try a few different scenarios until you find a plan that works for you. Then see if you can set up automatic contributions to your retirement account so that you don’t forget to make them. Also, set aside time each year to review your retirement plan. Take this opportunity to re-evaluate your investment strategy and rethink your retirement goals. Once you have a suitable plan in place, you will feel much more confident that you are saving enough.
The $18,984 Social Security Bonus Most Retirees Completely Overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” can give your retirement income a boost. For example, one simple trick can save you as much as $18,984 more… a year! Once you know how to maximize your Social Security benefits, we think you can retire with confidence with the peace of mind we all strive for. Click here to learn how to learn more about these strategies.
The Motley Fool has a disclosure policy.