I'd like to retire this year. How do I know if I have enough saved up?

There is no “one size fits all” answer to how much is enough when it comes to retirement. That is why retirement planning is often thought of as a complicated and taxing topic. But it doesn’t have to be. At Summerlin Benefits Consulting, we believe in making things simple for our clients. Below, we will outline some of the basic steps one should take when determining how much they will need to have in their retirement nest egg to live comfortably when they retire. 

Expenses  

The first step is to look at your current expenses and then try to determine which expense categories (if any) will change once you retire. Generally speaking, one’s interests and habits during their working years are not likely to change drastically when they retire. For example, someone who likes to travel and eat out a lot in their working years is likely to continue traveling and eating out in retirement. Of course, with more free time in retirement, these habits could change, but are not likely to do so overnight. 

Lifestyle 

Next, you’ll need to consider the larger-expense items pertaining to your lifestyle, such as your car and your home. For example, your vehicle may be paid off; however, you’ll need to look ahead and determine whether you may need to purchase a new one at some point during your retirement. When it comes to your home, someone who has a primary residence that they own outright and intend to remain in the rest of their lives will have fewer monthly expenses in this category than someone who may have multiple vacation homes and mortgages to pay off.  A complete financial inventory and lifestyle assessment is key to retirement income planning. 

Unforeseen Circumstances 

There are other factors you’ll need to keep in mind when planning for retirement, even if they may be somewhat out of your control; these include inflation, home or vehicle repairs, medical emergencies and the possibility of future long-term care and/or healthcare costs. Of course, you can't put an exact amount on some of these items when determining how much they’ll cost you in retirement, but you can be proactive by including them in your estimates. 

When it comes to healthcare, remember that you won’t be eligible for Medicare until age 65. So, if you and/or your spouse are planning to retire before that age, you’ll need to account for the purchase of private healthcare insurance. Additionally, if you’re planning to set aside anything for potential long term care needs, this can be extremely costly.  If anything, it is ideal to make sure you have a cushion in your nest egg that can help with these kinds of “what-ifs”. 

How to add it all up 

Try to come up with an estimate of how much you’ll be spending each year during retirement given the factors listed above. Our list is not all-encompassing though, so be sure to include any expenses unique to you and your lifestyle and don’t forget to plan in some travel and fun!  Then, add a healthy cushion of somewhere around $10,000 per year for any emergencies; this may differ from person to person depending on their health, age of their home, marital status, and risk tolerance, etc. 

Compare those expense factors to your guaranteed retirement income, such as Social Security, pensions, and other benefits that you know you’ll be receiving.  More benefits can help offset your retirement expenses so leave no stone unturned and also incorporate your spouse’s retirement income, if applicable.  That will give you an idea of how much additional income you will need to pull from your retirement savings accounts to supplement those other income sources.  A good guideline to use when determining if you have “enough” saved, is to use the 5% Rule; this rule tells you to try to only spend about 5% of your nest egg each year in retirement. Of course, the percentage could go up or down depending on the person, but this offers a good starting point for how much to have on hand before retiring. 

Example, if your “bottom line” spending, after accounting for other income benefits coming in, still leaves a deficit of $20,000, you know you’ll need to pull at least $20,000 per year from your retirement nest egg.  Is that 5% of what you currently have saved or do you need to save a little more, before you take the leap into retirement?   You can figure that out by taking the $20,000 and dividing it by .05 which, in this example equals: $400,000.  The 5% rule says that having $400,000 set aside will allow you to pull $20,000 per year and will still last you 30 years based on your current rate of spending.   If you retire at age 65 that means your savings should be enough to last until you are 95.    

There are other factors to consider such as inflation and, as mentioned, unforeseen events, but the 5% rule is a good baseline to start with.  A professional financial firm like Summerlin Benefits Consulting can help you dig into this a little deeper and also plan more specifically to your current and future needs.   

Making the decision 

Once you’ve done all the math, it is time to decide whether you can retire this year or if you may need to keep saving.  But you don’t have to make this decision alone. It is always a good idea to have a financial professional take a look at your plan so that you can feel confident about the path you’re on. A good financial professional should also be able to offer assistance with understanding market trends and how they may impact inflation and interest rates during your retirement. 

At Summerlin Benefits Consulting, we help our clients navigate retirement planning in a simple, easy to understand manner, so that they can realize their individual, unique retirement goals and work towards those goals. Give us a call today for a no-obligation meeting to review your financial plan so that we can help get you on the road to retirement.