Have you ever thought about this? Many of us are just blindly putting money into some type of retirement vehicle (401(k), SIMPLE, IRA, etc) but is this going to be enough?
There are a few things to consider when trying to figure out how much money you’ll need. First, try to figure out what percentage of your current income you think you’ll need for retirement. If you had no debt and no mortgage, now much of your income would you need to live off of? Don’t forget that you won’t be saving for retirement once you retire, so you can take that out as well. If we didn’t have any debt and weren’t saving for retirement, Jeff and I could live on about 50% of our current income.
Next, you’ll need to consider how long you might live. Go whip out your crystal ball… wait, you don’t have one of those? Aww, come on. No crystal ball? Really? Ok, ok. How about the next best thing? The Living to 100 Life Expectancy Calculator is not exactly a crystal ball, but I know a lot of financial planners and other professionals that use it as a gauge. The other nifty thing about this calculator is that it gives you suggestions how to improve your life expectancy. You’ll probably be amazed how long you’re going to live. According to the CDC, if you were born in 1980, your life expectancy is 74 years. If you make it to age 65, your life expectancy jumps to about 85. That’s a lot of retirement money.
I found a great retirement calculator at MassMutual’s website. It’s the first one on the list, “retirement planner”. This allows you to put in your current age, retirement age, how much you currently have saved and a bunch of other variables to see how the numbers work out. It will also give you suggestions to reach your goals. It’s a very nice tool. I would suggest that if you are under the age of 50, do not check off the “include social security” box. At some point the government is going to need to make changes to the social security system and I would rather you plan as if it does not exist. If you plan that there won’t be social security and it’s there when you retire, you’ll have much more money. If you plan for it to be there and the benefits are reduced or aren’t there at all, you won’t have enough money.
When I did our calculations, I also did not take into account my husband’s pensions. Unless it’s money in my retirement account, I’m not counting it yet. If the pensions are there when we retire, we’ll have a hell of a retirement, but I think at this point we are just too far from retirement to feel secure that they will be there. If you are closer to retirement and vested in your plan, you can reduce the percentage of your income that you’ll need from your retirement account. For example, if you think you’ll need 80% of your current income in retirement, but you have a pension that will provide you with 60% of your current income, then you only need 20% from your retirement account.
How are you progressing toward your retirement goals?