Your Time: Planning for Successful Retirement

Retirement should be a time of absolute happiness, relaxation, and a sense of life accomplishment. You have had a wonderful career, raised your family, serving your community, and otherwise paid your dues. For most, retirement presents that much-deserved opportunity to do all of those wonderful things you have patiently waited a lifetime to undertake: traveling, playing more golf, gardening, spending more time with family, volunteering at your place of worship and in your community, and generally having no schedule at all.

Unfortunately, 80% of Americans are not prepared for retirement for a variety of reasons. First, there is a complete lack of retirement planning until a couple of years prior to the anticipated retirement date. Secondly, maximizing participation in employer-sponsored retirement plans and non-employment-based individual tax-favored retirement arrangements is not prioritized. Thirdly, individuals often spend 80% to 120% of earned income on living expenses and lifestyle, have significant credit card debt, refuse to meaningfully budget, and fail to live a lifestyle that supports the conservation of income and promotes saving for the future. Notwithstanding the foregoing, all is not lost. 

You will still have time to live successfully in retirement regardless of where you are on the retirement horizon. Achieving this success, however, may require you to change your lifestyle and possibly work longer thereby postponing your intended retirement date. Part-time employment during retirement is recommended, especially if you are able to find employment doing something that you enjoy. Retirement is also a great time to start a business as long as you are not using your retirement income (Social Security and 401 (k) to finance the venture. Extra income in retirement will definitely ease the financial burden. 

This article focuses on the “Million Dollar Question” reflected below. Our retirement planning strategy included 12-steps as a guide during your retirement planning journey, which does not focus on investments. Planning backward is a great strategy. Choose your intended retirement date and retirement income goals, think about your current situation, and implement the changes that you need to make today in furtherance of that goal. As long as you prioritize successful retirement in every decision that you make, the pieces will fall in place and your goal will be fulfilled. 

Million Dollar Question

How much Money/Retirement Savings Must I Have? 

Determining the amount of money and savings that you need in order to successfully retire is the “Million Dollar Question.” Interestingly, the average person of average means will need in excess of one million dollars during their retirement years in order to live comfortably. It is important to note, in retirement, you will have the same expenses that you have during your working years. You will also have unforeseeable (unplanned) expenses and pension benefits are generally subject to federal and state income taxes. If you currently spend 100% of your earnings in order to pay for your expense, some of which are discretionary, you will need 100% of your pre-retirement income during retirement if you intend to maintain your same lifestyle. We are creatures of habit and it’s extremely difficult to change the lifestyle to which we have become accustomed. If change is necessary as part of your retirement planning journey, then change must occur. 

Retirement income is essentially income replacement during your retirement years. Retirement plan distributions, Social Security, and other amounts that you receive during retirement need to be sufficient to replace a percentage of the income you earned during your working years.

If you want to retire by your mid-60s, basically when your Social Security benefits kick in, you will need to have saved enough money to support yourself for the next 20 to 30 years and maybe longer as many Americans are experiencing unprecedented longer lifespan. Many people are outliving their savings. The earlier you hope to retire, the more money you need to set aside and the sooner you have to start saving. Most people retire later than planned because they have too much debt and have not saved enough money through retirement arrangements and traditional savings. 

  • 65% of your pre-retirement income. 

You may need 65% of your pre-retirement income if you have saved 15% or more of your annual earnings, are a high-income earner, will own home free of debt by the time you retire, and don’t anticipate leading a lifestyle in retirement that reflects your current high income. If you are an especially high-income earner who lives well beneath your means, you may be able to do just fine with even less than 65%. Pick an annual dollar amount or percentage of your current income that will allow the kind of retirement lifestyle you desire and start making the necessary changes to achieve this level of savings. 

  • 75% of Pre-retirement Income. 

You may need 75% of your pre-retirement income if you have saved a reasonable amount (5 to 14%), of your annual earnings, you will still have some mortgage debt or a modest rent to pay by the time you retire and anticipate having a standard of living in retirement that’s comparable to what you have today. 

  • 85% of your Pre-retirement Income. 

You may need 85% of your pre-retirement income if you have saved little or non of your annual earnings (less than 5%), you will have a relatively significant mortgage payment or a sizeable rent to pay in retirement and anticipate wanting or needing to maintain your current lifestyle throughout retirement. 

Unfortunately, many of us will need 100% of our pre-retirement income in order to successfully retire without worrying about meeting our financial obligations during retirement. 

The RETIRE Project at Georgia State has provided some estimates: 

  1. If you make $50,000 per year, you will need 80% of that amount in retirement each year.
  2. If you earn $20,000 per year, you will need 94% of that amount in retirement each year. 
  3. If you earn 90,000 per year, you will need 68% of that amount in retirement each year. 

Another way to estimate retirement income is to look at your spending. You should save 25 times your annual post-retirement spending, which assumes that you will live for 25 years after retirement. You should be planning for retirement now, even if you won’t be retiring for 20 years. You should be living on a budget now. Don’t wait until you are close to retirement to plan for your retirement. 

Our 12-step retirement strategy prepares you to successfully retire without becoming an investment guru. You can live comfortably in retirement, regardless of the amount of money you earn today, by planning your future using a holistic approach.