When it comes to figuring out how much you should save for retirement, it seems there's no shortage of free advice roaming around. Should you aim for having a $1 million nest egg? Or is a good rule of thumb to have a savings that's 10 to 12 times your current income? With all this information, what is a realistic way to gauge how much retirement savings you'll need?
The truth is, everyone's number is going to be different, and factors such as where you live, your health, age, and how long you'll live will all play a part in how much retirement savings you might need.
The following information may not be the magic formula that you're looking for, but it will at least get you thinking about where you might want your optimal number to be.
Begin by asking yourself the following questions about how much you should be saving for retirement:
- Will you potentially outlive your nest egg? If you're healthy and have a family history of longevity, then you might want to factor in those additional years so that you don't outlive your money.
- How are your current savings and investments working for you? Are your savings generating enough return? If not, see where you can make adjustments in your portfolio - the sooner the better.
- Do you plan to “age in place” (remain in the same home when you retire)? If so, will your mortgage be paid off by the time you retire?
- Do you want to work part-time in retirement (potentially reducing the amount you'll need to save)?
- Will your kids (or your parents) need financial help from you?
- Should you consider moving to a less expensive area or downsizing to a smaller home and using home equity for investments or retirement income?
- And what about that new roof (or other unexpected expenses that will come out of your emergency fund)? Will you pay for that before or after you retire?
- What will your living costs look like when you retire? Many people are surprised to learn that they could very well end up spending more in retirement than they did when they were working.
The most important thing to remember if you find that you're falling short of your goals is to not give up. Consider making adjustments where necessary, and come up with a new plan to try and save more.