How To Know If You’ll Have Enough Money to Retire
When it comes to our retirement, we often have many important questions. And while all of them are valid, no two questions are as crucial as:
- “Will I have enough money to retire when I want to?”
- “Will I have enough money to last me through retirement?”
After all, you can’t legitimately plan for your retirement if you don’t know when you want to retire and how much you’ll need to sustain the retirement lifestyle you envision. You also can’t be psychologically or emotionally comfortable without having a plan you believe in. It’s why so many of us have legitimate anxiety about retirement.
Of course, much of that anxiety is warranted – because too many of us truly lack a plan fit to meet our retirement needs. It’s why strategic planning is a necessity – for our financial peace of mind.
To help you answer these questions, we’ve outlined several insights and tips that will help you determine if you’re on track for your desired retirement.
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Determine the Lifestyle You Want to Live
You can’t devise a plan if you don’t first determine what your end-goal is. And before defining that numerical goal, you need to define how you wish to live in your retirement.
Projecting your retirement lifestyle may not be easy for most of us. But there are resources that can help you create a clearer picture of what you want after you retire. Web services such as the AARP site, LifeReimagined.org, can help you think about how you’d want to live in retirement. Its resources include expert-created tutorials on setting retirement goals, career planning and more.
Another site, LifePlanningForYou.com, is designed to lead you to a deeper understanding of what’s most important to you. It provides introspective exercises that help you begin the process of clarifying your values, priorities, needs and goals. The exercises will motivate you to determine concrete, step-by-step goals that you can achieve in a short period of time. For example, if you’ve dreamt of moving to Arizona, the site will push you to research the community.
Of course, these are just two resources out of a seemingly endless world of information on the web. The key is not which site you use, but that you put in the necessary effort to outline your desired lifestyle. Because if you know the lifestyle you want, you can potentially determine how much money you’ll need each year.
Project Your Longevity
Once you’ve determined the kind of life you want to live in retirement – and approximately how much income you’ll need each year – you’ll want to project how many years you’ll need to produce such income.
Unfortunately, many of us often underestimate how long we’re going to live. And when we live past that point, we’re left physically viable, but scrambling financially. Medical innovations and greater knowledge have undeniably helped humans live far longer with a greater likelihood that live longer than our parents.
Rather than using your family as a barometer, you can use resources such as life-expectancy estimators to make a more educated guess at how long you may live. These tools factor in your health, habits, socioeconomic status and family history. Bluezones.com, Livingto100.com and Abaris.com will all help you gain a better grasp on how long you may live in retirement.
Blue Zones will even forecast how long you’ll live a “healthy life,” and when you might begin to deal with medical issues – helping you understand when you might bear higher healthcare costs.
Establish a Monthly Budget
As much as an understanding of your life expectancy will help, it’s impossible to truly know how long you’ll live. And thus, it’s impossible to know exactly how much money you’ll need in retirement. But if you can project your spending, you can put a strategic plan in place to cover those expenses.
Let’s say you’ll likely have a similar pattern of expenses in retirement as you do now. If you track your current spending, you’ll be able to assess your spending trends for the future too. Online tools such as Mint and Yodlee’s Financial Wellness Center can help you create a budget based on your historical spending patterns.
You simply link your bank, credit card, investment accounts and more, putting your entire financial picture in one place. It then tracks your spending, breaking down your expenses based on different categories, which you can customize. Mint can even estimate your retirement income based on the amount you’ve saved and your financial habits.
Seek the Guidance of a Dedicated Advisor
With an understanding of your current and projected monthly expenses, how long you may live, and the lifestyle you wish to maintain, you can start to bring your retirement needs into focus.
While the resources mentioned above are incredibly helpful to paint that proverbial picture, they are (of course) very rough estimates. And you wouldn’t want to bank your ability to afford your retirement lifestyle on approximations. That’s why working with a financial advisor is important – It’s the best way to properly prepare for your retirement.
Seasoned financial planners have the same technology as online planning tools plus they have experience in preparing future retirees for their economic needs. They also understand how your life decisions impact your finances. They key is taking the time to uncover your deepest needs and concerns, and creating a wealth strategy that’s perfectly suited for your retirement plans.
You can get a head start on planning for your retirement, though. Become familiar with five of the greatest wealth creation strategies outlined in our guide.
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About Greg Hammond, CFP®, CPA
Greg Hammond is the chief executive officer of Hammond Iles Wealth Advisors, and co-founder of Planned Giving Strategies®. Greg leads a team of professional financial advisors providing customized wealth management and investment solutions for high-net-worth individuals, families, companies, and charitable organizations across the U.S.