Do I Have Enough to Retire?
Planning for retirement is important, but it’s a process that often comes with questions.
Will I have enough to retire?
Can I maintain my lifestyle through retirement?
How much will I need to retire?
To find those answers and have a sense of comfort and security along the way, it’s important to estimate how much income you’ll need for retirement.
It’s not an exact science and it’s a different process for each person based on the lifestyle they want to live upon retiring. Are there specific goals or bucket-list items you have in mind? Do you plan to travel extensively or have a more modest retirement?
Planning ahead, especially from an investment standpoint, is imperative to know if you have enough or will have enough in the near future to reach whatever retirement goal you have in mind.
Start with your current income
Desired annual retirement income as a percentage of your current income is often a good place to start. A recent Vanguard study suggested a target between 70-85 percent of pre-retirement income, but that can be adjusted based on your retirement goals. If you’re planning to travel a lot after retiring, you may need closer to 90-100 percent (or possibly more) of annual pre-retirement income. A more relaxed lifestyle could mean budgeting 60 percent of your pre-retirement income.
This can be a simple approach for projecting your future, but your current income sustains your present lifestyle. Reducing it by a certain percentage reflects the fact there will be certain expenses – payroll taxes, etc. – you’ll no longer have to pay.
It can be a good benchmark or starting point, but it’s worth taking a much deeper dive into your expenses – and your investments – as well.
Project your retirement expenses
Your current annual income should be enough to meet retirement expenses, but estimating those expenses is a big piece of the planning puzzle. Here are some of the common ones during retirement:
- Food and clothing
- Housing: Rent or mortgage payments, property taxes, homeowners insurance, upkeep/repairs
- Utilities: Gas, electric, water, telephone, internet, cable
- Transportation: Car payments, auto insurance, gas, maintenance and repairs, public transportation
- Insurance: Medical, dental, life, disability, long-term care
- Health-care costs not covered by insurance: Deductibles, co-payments, prescription drugs
- Taxes: Federal and state income tax, capital gains tax
- Debts: Personal loans, business loans, credit card payments
- Education: Children’s or grandchildren’s college expenses
- Gifts: Charitable and personal
- Savings and investments: Contributions to IRAs, annuities, and other investment accounts
- Recreation: Travel, dining out, hobbies, leisure activities
- Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other type of assisted living
- Miscellaneous: Personal grooming, pets, club memberships
Cost of living will go up over time, and your retirement expenses may also change from year to year. That makes an annual review of your investments and retirement plan important as well.
You may pay off your mortgage or a car early, and other items like health care and insurance may increase. It’s best to build a comfortable cushion into your investments, and our financial professionals can help with your estimates to make them as accurate as possible.
Decide when you’ll retire
Have a date in mind? If so, you need to make sure your post-retirement income – investments, retirement package, etc. – aligns with your goals.
It’s also important to estimate how long you’ll be retired. The longer it is, the more years of income you will need. This decision typically revolves around your personal post-retirement goals, as well as your current and expected financial situation.
For example, if you plan to retire at 55 you’ll need more money than what you would if you chose to retire at 65.
Estimate your life expectancy
Again, these are just estimates, but lifespan is another big factor to consider. A longer life – and people are generally living longer today than they were 10-20 years ago – means a longer retirement to fund. There’s always a risk of outliving your retirement savings, so it’s important to estimate your life expectancy.
Things like government statistics, life insurance tables, or a life expectancy calculator can help, basing estimates on your age, gender, race, health, lifestyle, occupation and family history.
Identify your sources of retirement income
If you can get an idea of your retirement income needs, you can then assess how prepared you are to meet those needs. Do you have enough saved up? Are you on the right track?
That can all be answered after you factor in the items we’ve discussed in this article.
In addition to your investments and the retirement plan you’ve worked on, your employer may offer a traditional pension paying your monthly benefits. You can also likely count on Social Security to provide a portion of your retirement income and, if you plan to work during retirement, that can be another helpful source of income.
Combined, it’s a great way to determine if you’ve saved enough, if you’ll be ready to retire when you want, and make the most of your retirement.
Other helpful items
Our website has a number of calculators to assist you in answering your retirement planning questions, including an investment goal calculator, retirement planner calculator, retirement shortfall calculator, and more. All are great tools to help figure out how much you’ll need to retire, and if you need to make changes to your current investment plan.
In addition, our dedicated team of investment professionals at Park National Bank can help you with a plan to reach your retirement goals. It also provides added peace of mind working with a trusted retirement partner who knows you and your goals. Call us at 937.548.2206 and we can tell you more about the extensive services we offer.
Investment products are not FDIC insured, not bank guaranteed, and may lose value.