When you picture your ideal retirement, what do you see? This question is essential to planning your post-work life, offering insight into the amount of savings you need to live happily in retirement. It’s not the dollar amount that matters, but what those dollars buy.
In his book The Number, Lee Eisenberg discusses this issue in depth. He describes his own personal experience with being partially retired and yet eternally worried if he had enough money socked away for the future. This all-too-common issue has spurned a great deal of research in recent years. Ameriprise Financial studied 432 millionaire retirees and found 40 percent of them felt amassing a million dollars was “not that big a deal”. 70 percent of them don’t even consider themselves wealthy, and nearly half think you need at least $5 million to reach that level. In essence, their peace of mind was unaffected by growing their savings to this stigma-ridden milestone. But what number would truly satisfy them? What matters isn’t reaching some magic number, but providing yourself with the lifestyle you desire.
To find what works for you, the solution is simple. Take a detailed account of what your future needs will be – taking into consideration inflation and inevitable health care costs – and what you would like to spend your money on, such as trips to visit family and traveling abroad. You can then use that information to guide your financial decisions moving forward, laying out exactly how much you should be spending versus saving. The results are specific for each individual. For example, someone who plans to retire early and live an eccentric lifestyle for many years will need much more than a million dollars. Alternatively, there are those who live quite comfortably on much less savings, happily adopting a simpler, more frugal lifestyle. What’s important is identifying your unique goals and expectations. Two great advantages in answering these questions are trusted financial advisers and retirement calculators such as the Capital One Retire MyWay calculator. It’s important to take the results of these calculations with a hefty grain of salt. “These [calculators] are a good starting point, but they’re not a replacement for a financial planner,” said Maria Bruno, senior investment strategist at Vanguard. They can, however, be a useful tool in starting a dialogue with your planner.
The important thing is to realistically assess your retirement needs. Rather than settling on a million dollars or some arbitrary number, take the time to flush out the details and get a good understanding of what you want your future to look like. Finally, remember this simple advice: spend less, save more, and work longer, and you will be better prepared to live the retirement of your dreams.
What kind of retirement lifestyle do you envision for yourself? What lifestyles of friends or family do you find attractive or unappealing? How have you managed your savings with your financial advisor? Share below!