Personal Finance

How Much Will I Need to Retire?

In the wake of half a decade of modest growth of the U.S. economy following the 2008 financial collapse, the question of retirement planning has taken on different complexities than before.

Now seniors who previously felt confident in following popular wisdom have been left out in the cold. Will steadily saving a portion of your income and investing in a diversified portfolio of modest growth stocks be sufficient to reach retirement goals?

Many people pulled money out of the market as it was on the way down, or even on the way up, missing out on the amazing bull market that was witnessed in 2013. Despite the setbacks, disappointments and confusion investors have felt in recent years, careful and thoughtful retirement planning and investment must be undertaken.

One of the most important questions any American can ask is: How much will I need to be able to comfortably retire?

There are several key factors to consider when deciding how much is needed in order to be able to retire comfortably:

  1. Discretionary Spending – The average American lifestyle may include a healthy amount of discretionary spending such as eating out, buying gifts for the holidays, vacations and buying the latest technology. It is a good idea to begin to wind down some of this discretionary spending in the years approaching retirement in order to avoid a sudden shock of having to go without many of these comforts in the retirement years.
  2. Location and Housing Choice – The location of your retirement and the kind of home you decide to live in will make a big difference in the amount of money you will need in order to comfortably afford your retirement. Smaller cities may offer a more comfortable pace and bargains on housing. Additionally, unless you plan to have company often, kids and grandkids for example, it may be better to go with a smaller home rather than a larger one. Smaller homes are easier to manage, cost less to heat and cool and generally cost less to purchase.
  3. Health – Your health in your retirement years will also play a very important role in the amount of money you need. Of course, if you are in better health, you will need to spend less on healthcare and medicines and you will overall have more options on where to live.
  4. Continuing to Work – The concept of “retirement” has truly changed. It no longer necessarily includes a 100% cessation of all work activity. Many retired people continue to earn money through working a part-time job or even creating small businesses at home or within their local communities. If you plan to continue to generate income, you will need to have less money saved than if you plan to live 100% off savings.

So, how much do you need in order to be able to retire? According to Fidelity Investments, you will want to plant to have at least eight times your ending salary saved in order to have a shot at making it through your retirement on savings alone. But remember, the aforementioned factors will play a large role, so it’s better to start planning your retirement expectations as early as possible.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.