The answer to your most burning retirement saving question
If I had to pick just one question that comes up almost all the time in the initial financial planning process, it would be:
How the heck do I know how much I’ll want and/or need in retirement income when that’s still 10, 20, or even 30 years down the road???
Now that’s a loaded question with major implications to your current and future financial well-being if I’ve ever heard one. So let’s start with the simple answer.
The simple answer is you can’t know how much you’ll want or need in retirement income with any certainty.
The next best available option to us is to make our best guess and plan on updating that guess as our lives change and new circumstances warrant an adjustment.
This answer usually leads to your next question…
How do we even formulate our best guess around how much we’ll need in retirement income?
Luckily, this question has a simpler answer.
Start by figuring out how much you’re spending right now. Then use that spending amount as a starting point for how much you’ll need in retirement income.
Not sure how much you’re spending right now? Go online and pull up your last three to six months worth of credit card statements and figure out your average spending. Then add in your fixed payments that come right out of your checking account – i.e. mortgage, insurance, car payments, etc. It will probably only take you about 15-20 minutes to establish a rough estimate.
Now you might already be saying...
But Brian, my kids – God willing! – will be out of the house and off the family payroll at that point so can’t I plan on spending less?
You certainly could. But before you do, don’t forget to factor in the one big thing you’ll have in spades once the kids are out of the house and you’re retiring that you probably lack right now.
Free time. Lots and lots of free time.
And when we have free time, we have more opportunities to do more things. Things like going out to eat or for drinks with our friends, playing more tennis or golf, and taking more vacations and trips. These are all things that – you guessed it – also cost money.
I’m not suggesting that you can’t plan on spending less in retirement than you might be spending right now. What I am suggesting is that you shouldn’t automatically assume that will be the case.
And do you really want to create a plan that only works if you spend LESS in retirement?
Luckily, if you’re reading this now when you’re still 10, 20, or even 30 years away from retirement, you have an opportunity to prioritize your financial planning right now. And if you do, chances are you won’t have to reduce your spending to make your retirement work.
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