How much money do you need to retire comfortably? Is it $250,000? $500,000? $1 million or more? What is a realistic amount based on your current and visualized lifestyle? Most people feel they need more money than they have. Ask a person with $500,000 in retirement savings how much they need for retirement, and they will likely say, “More than what I currently have.” Ask a person with $1 million or $3 million in retirement savings, and the answer will be the same.
The trick to a happy retirement, financially speaking, is not to concentrate on amassing an abnormal amount of wealth but to determine how much money will make you feel secure. In other words, how much money will you need to live and fulfill your visualized retirement lifestyle?
In a practical sense, how you spend your retirement time will determine how much money you’ll need. If you plan to travel the world or indulge in expensive hobbies such as luxury sailing, then your financial needs will be much greater than someone with more modest plans. What you don’t want is to envision a retirement you realistically cannot afford. All this does is cause anxiety and unease.
By creating a retirement that is realistic and affordable, you gain satisfaction and peace of mind. Calculating a good estimate of the cost of your retirement plans is the key to determining the amount of money you’ll need to save.
Part 1: Estimating Retirement Lifestyle Cost
Ask yourself the following questions:
1. At what age do my partner and I want to retire?
Me__________ My partner __________
2. Do we plan to downsize our home? Yes / No
3. Will we move out of the city to a less expensive home? Yes / No
4. Will we move to a retirement community? Yes / No
5. Do we want to rent or own a vacation home? Yes / No
6. Will we spend time in warmer climates each year? Yes / No
If so, for how long? ______________________________
7. Do we plan to travel abroad? Yes / No
How often and how far? __________________________
8. Will we stay in upscale hotels? Yes / No
9. Do we plan to make any major purchases or renovations? Yes / No
10. Will I (we) work part-time while retired? Yes / No
11. Will I (we) help support any family members? Yes / No
12. What hobbies will my partner and I pursue? Cost? ______________________
13. Do we plan to frequently dine out, attend the theatre? Yes / No
14. Do we plan to spend all our capital during our lifetime
or do we plan to leave an estate? Yes / No
By answering the above questions, you will start to get a sense of how much money you will need in retirement. Obviously, there is no single amount that will guarantee an adequate retirement, but most financial advisors in North America use a guideline of 60 to 80 percent of what you earned in the years right before retirement to determine the amount you will need to maintain your standard of living in retirement. This assumes that you will live mortgage or rent-free and that you will be able to live somewhat more inexpensively in retirement. The closer you are to the 80 percent mark when you retire, the more comfortable you will likely be.