Does anyone else remember those commercials about your retirement “number," where people were pushing around an egg with a number on it? Or maybe you’ve seen a recent article about which multiple of your salary you should have saved by each decade of your life?
While rules of thumb can be very helpful, I think they are most useful for those who are still decades away from retirement.
For those of us who are closer to retirement than not (I’m looking at you, Gen Xers) a more specific understanding of your situation is necessary. One thing I’ve learned running retirement plans for people whose financial position runs the gamut from “broke” to “flush” is that there is no specific amount of money that everyone should plan to reach by the time they retire. Obviously, everyone’s situation is different.
You need to figure out what you would like your life to look like in retirement and work backward from there. A woman with a pension whose house is paid off will need a smaller pool of investments from which to draw in retirement.
If you have big travel dreams, and children who will still need your assistance (and let’s be honest, maybe parents) you will need to have more saved. I can’t promise you that you’ll achieve your ideal retirement, but you definitely won’t be able to prepare at all if you don’t figure out what it is.
I’m not talking about specific numbers here, but I’m referring to figuring out what kind of life you would like to lead. Advertisements geared toward retirees (or those who would like to retire) mostly show ridiculously fit, white-haired people sailing, cruising, or otherwise frolicking in the sun. This may be exactly what you have planned, or you might prefer to stick closer to home.
The point is that your dreams have a different price tag than your neighbor’s. Figure out what it is that YOU want, and then work on some advanced planning with an advisor to determine what price tag that will have.
Of course you need to plan; I’m not advocating “winging it." At the most basic, you need to figure out how much money you plan to spend each year, how much recurring income you’ll have (social security, pension, rental income, part-time work, etc.) and calculate the difference. Then figure out how much of a nest egg you will need to generate income equal to the difference.
Working with an advisor on developing a retirement plan is strongly advised, as the above doesn’t factor in inflation, fluctuating health care costs, and the fact that spending in retirement isn’t usually a straight line. The bottom line is that there is no one number, no rule of thumb that fits everyone. You don’t need to know a “number”, you need a plan.