Most of us hope to have a comfortable retirement when we finally opt to leave the workforce. To assure this as a possibility for ourselves, we need to make sure we’re saving money throughout our working lives.
Many financial planners assert that yearly, retirees will need access to funds equal to roughly 70% of their current annual income. This is a good rule of thumb, but according to J.D. Perry of Baton Rouge who oversees Moss Point Financial with over 20 years of experience as a tenacious and enthusiastic executive in the financial services industry, it doesn’t take into account regional and lifestyle variations.
People that live in expensive states will have higher annual expenses upon retirement than people that live in more affordable areas. Likewise, couples without children tend to spend more on themselves during their working years, which means their retirement needs won’t drop as much as those of couples with children, whose childcare expenses won’t be necessary.
Below, J.D. Perry of Baton Rouge reviews how much do you need to retire as well as practical methods that can help you calculate a realistic savings goal.
Compute Your Likely Annual Retirement Expenses
The first step in determining how much you need to save in order to retire comfortably is to compute what your expenses are likely to be. Make sure to take into account when mortgages and cars will be paid off, and the sort of lifestyle you hope to enjoy during retirement. Homebodies will needs less annually than those looking to travel.
If you have children, make sure you reduce your estimates for things like food and clothing compared to what you’re spending today. In theory, your children will be out of the house and supporting themselves by the time you retire, which means you won’t need to spend as much in these areas.
Consider the Length of Your Retirement
In part, the amount you need is dictated by your desired retirement age. There’s a movement among young people today called FIRE, for financial independence, retire early. Subscribers to this philosophy are working to retire in their forties, or as soon as possible.
In order to make this happen, the movement recommends that people save 25 to 30 times their current annual expenses before they leave the workforce. This is quite a lot of money to save in the 25 or so working years that precede retirement at 45, but ambitious goals like that are needed to support a retirement that could last 40 to 50 years or more.
For most of us, looking at a regular retirement around the age of 67, far less is needed, as a later retirement means a shorter retirement. One rule of thumb recommends saving 10 to 12 times your current annual expenses.
Bear in mind that longevity is an unknown. You might live to be 75, but you could make it to 95. Family history can give you some indication. If you’re concerned you might outlive your retirement savings then it’s wise to save more than the recommended amounts.
Save as Much as You Can
Ultimately, retirement estimates are a good starting point, but there are enough unknowns, including what your retirement cost of living might be and how long you’ll live once retired, that it’s always better to save more rather than less. Save as much are your current budget allows. Be frugal if necessary to increase your savings. Use your retirement estimate as a base. If you make sure that you at least hit that figure, you should be covered. If you go over, all the better!
About J.D. Perry:
J.D. Perry of Baton Rouge, LA is a results-driven leader with over 20 years of experience in financial analysis, corporate cash management, asset management, environmental mitigation banking, and real estate. Mr. Perry focuses on minimizing risks and building relationships to drive continuous growth and profitability.