By Allen Giese, ChFC®, ChSNC®, CLU®
The most frequently asked question we receive about retirement planning is, “How much will I need?” The answer can involve a lot of variables. So, let’s look at what some of those variables are.
How Much Income Will You Need in Retirement?
We find for most people, their level of average expenses just prior to retirement tells us how much we need to plan for during retirement—usually about the same. Planning for any less during retirement often means changing your lifestyle and perhaps sacrificing some aspects of what you enjoy doing. Not very many people I know would want to do that.
The trick becomes trying to determine, years ahead of time, what that level of living expenses will be. This is where talking to someone with experience could be beneficial to your long-term planning.
Social Security and Other Pensions
Some of us have had jobs or careers in the past that offered a pension—a fixed amount of monthly benefits that are payable at retirement age. Often, careers in public service offer a pension benefit if you worked there long enough to qualify. If you have any pensions in your plan, you’ll want to know how much those benefits are projected to be, as that reduces the amount you’ll have to save on your own.
Social Security retirement benefits are a form of pension that most of us qualify for. Finding out your current projection for this benefit is quite easy to do by logging into www.ssa.gov and setting up your “my Social Security” web portal.
Inflation and Investment Earnings
How you invest your retirement accounts and the projected amount of earnings you use when forecasting your future retirement benefits can make a big difference in your outcome.
Fighting future inflation, even if it’s modest, is what’s most important here. We all know that 10 or even 20 years from now, everything is going to cost more. Perhaps a lot more. Underestimating inflation can mean a nasty downward change in lifestyle at retirement because you just won’t have enough for a long, enjoyable retirement. Similarly, overestimating your projected investment return and perhaps being a bit too optimistic can lead to you coming up short on the date you wanted to retire.
These are just some of the things you need to consider—and there could be more depending on your set of unique circumstances. Inheritance or some other anticipated windfall could also play a role. Once these factors are considered, you can do the math to determine how much you’ll need at retirement to accomplish the goal of keeping you in the same lifestyle you’ve grown accustomed to.
Need help? That’s why we’re here! Give us a call and let’s set up a time to chat. It won’t cost you a thing, it’s private, and it’s all part of the service we provide HDS employees as your Retirement Plan Advisor.