How much do you need to retire? Have you made a guess? Are you estimating that you’ll need more than you have? Maybe you have kind of thought it through and come up with a number in your head? Or perhaps you are just hoping that whatever it is you have will be enough?
But what are you going to do if your best guess is actually just plain wrong?
No matter what the song lyrics say, “just wishin’ and hopin’ and thinkin’ and prayin’…” are not the best strategies for figuring out how much you need for retirement!
Guessing at your retirement needs puts you at a financial risk. However, guessing is how most people seem to plan.
The vast majority — about two-thirds of American workers — don’t know how much they should be saving for retirement, according to a recent study by TransAmerica Center for Retirement Studies. And, 42% of American workers don’t have a retirement strategy, let alone an estimate of how much they will need.
And the numbers aren’t that much better for people near retirement. TransAmerica calculates that almost half of baby boomers are planning their golden years by guessing how much they will need.
It may sound like stating the obvious, but you will be better prepared by taking the guesswork out of your retirement plan.
However, beyond the promise of financial security, the benefits of creating a retirement plan are far reaching and include:
1. Better Outcomes: Knowing how much you need often provides the motivation to save that amount. You have probably heard the phrase, “You can’t get there if you don’t know where ‘there’ is…” This is true for retirement planning. You need to know what you have and how much do you need to retire in order to make the right decisions.
2. Guesses Are Usually Wrong: Research shows that of the people who guess at their retirement goals, 20% base their estimates on their current living expenses. However, this approach doesn’t take into account how your expenses will change in retirement.
There are a number of critical factors to consider to more accurately determine how much you will need, including the age at which you want to retire, your predicted income sources once you leave the workforce, and the retirement lifestyle you’re hoping to achieve.
When you guess how much you will need, you could be leaving out important considerations, as well as missing opportunities to make your money work harder for you. Without knowing exactly how much you need in retirement, you could also lack the knowledge to put your savings into the right investment vehicles that you can withdraw later as retirement income.
3. More Options: When you create a plan for the future, you are able to assess different options. When you just let things happen, you have to deal with whatever is right in front of you. If you figure out how much do you need to retire, then you can figure out how to make that happen.
The good news is that it does not necessarily need to be about saving more. By creating a plan, you can see that spending a little less in different years of retirement, delaying the start of Social Security or tapping your home equity could be options that give you financial security.
4. Less Stress: Creating a retirement plan may seem like a stressful thing to do. In fact, according to a Franklin Templeton Retirement Income Strategies and Expectations (RISE) survey, seventy-seven percent of respondents who are 11-15 years from retirement reported feeling stressed when thinking about their retirement savings and investments. Fifty-six percent of those aged 45-54 said they were concerned about managing their retirement income to meet their retirement expenses.
However, while the vast majority of us feel stressed by retirement, studies show that having a retirement plan reduces anxiety and enables you to enjoy this time of your life.
- An earlier study from Franklin Templeton discovered that writing down your retirement strategies reduces stress.
- Documenting your income sources and doing what you can to make those income sources predictable are proven to make you feel more confident about retirement.
- Understanding the risks you have in retirement, and creating options for dealing with those risks will enable you to feel better at night.
One of the greatest fears about retiring is running out of money when you need it most. Planning ahead and ensuring you know exactly how much you need to live comfortably throughout your retirement is the best way to safeguard against falling short on your financial resources.
The NewRetirement Retirement Calculator is an easy way to create a plan and start reducing your anxiety. You take 5 minutes to document what you know now about retirement. Then, you can find get a thorough assessment of how much do you need to retire. Find out what risks do you face, will you run out of money and more… Then use simple tools to make changes and discover options to improve your plan. Best of all, it does not always need to be about saving more money. You have options!
Utilizing a retirement calculator is one of the best tools out there to give you an exact number to reach for. However, only 10% of Americans actually used a retirement calculator to figure out how much they need to stock away, according to TransAmerica.
Just beware of retirement calculators that are too simple — some of those are no better than guessing. Be sure to use a tool like the NewRetirement retirement calculator that lets you document different spending, saving and income rates as those will rise and fall during retirement. Home equity, helathcare costs and family are other factors often left out of simple calculators.
In order to help determine your financial needs, start with a retirement calculator that can help you base your target on factual inputs specific to your situation.
