It’s a question we’ve all asked our financial advisors and ourselves: How much money do I really need to save for my retirement?
Bob Rall, CFP®, says the answer is not necessarily 80% of your pre-retirement income, as Wall Street would more than likely have you believe.
Rall says financial planners and financial planning programs usually suggest the 80% figure to maintain your pre-retirement lifestyle. However, he suggests that figure can and should vary according to your needs. He’s concerned the 80% figure has almost become a given in the world of financial planning.
Financial planning is not a one-size-fits-all world,” according to Rall.
It’s important to understand that most of us will see some of our expenses – such as taxes and commuting costs – decrease in retirement.
And keep in mind your needs will change. At the start of your retirement, you may spend more on recreation, while spending more on health care at the end of your retirement.
Some people do well on 50% or 60% of their pre-retirement income. Some may need to have 110% to cover their retirement expenses.
As you decide how much you’ll need for your retirement, remember these four general rules of financial planning:
- Don’t use rules-of-thumb … find out the specifics for your situation.
- Plan, but plan on being flexible
- Monitor – do an annual financial plan update with your financial planner.
- Update your plan as your financial situation changes