This is the ‘million dollar’ question, isn’t it. And if you are like many soon to be retirees, you are no doubt concerned as to whether you have saved enough, when you can retire, and just as important, whether you can maintain a similar lifestyle in your retirement.
Unfortunately there is no easy answer to this question, as it will depend on any number of factors including your current financial situation and spending habits, as well as your goals and expectations in retirement. In addition, the amount you need to save will be tied to what your expected sources of income will be in your retirement. Do you have an employer sponsored pension plan, and are you one of a diminishing group of individuals who have one that is indexed to inflation? For you, the amount of savings required in retirement may be significantly less than those who are less fortunate and do not benefit from an employer sponsored pension plan.
But don’t despair, one of the most important steps along the road to financial independence, is having the courage to ask the questions. Once you have tackled the inertia of facing up to your truth, you can begin to take the necessary steps towards financial security. In many cases, the steps may be challenging, and yes, you may need to increase the amount you’re saving, or work a few years longer than expected, and perhaps even encourage your children to find their financial independence sooner, but in the end, the hard work will pay off.
So are you saving enough for your retirement to maintain your current lifestyle? Well, keep in mind that a common rule of thumb employed by financial planners’ states that if you withdraw 4% of your savings in each year of your retirement you will have a high probability that your savings will last at least 30 years. So how might this work in your specific situation? Consider the situation where you have estimated that you will need an additional $40,000 per year in your retirement. In this particular case using the rule of thumb analysis you would need to have saved approximately $1,000,000. But remember, a rule of thumb calculation should never replace the value of putting together a personalized financial plan. Understanding your specific situation and goals while working out what steps you need to take will put you on the road towards financial security and closer to maintaining your current lifestyle in retirement.