Eventually, every person here asks themselves the same question: “How much do I need to retire in Sarasota?” It’s the golden question, really. And the answer is, frustratingly enough, always the same: It depends. It truly depends on many factors, making it increasingly difficult to figure out when many are beyond our control.
Factors That Affect Retirement Savings
- Longevity
- Inflation
- Illness
- Family
- Location
- Expectations
- And the list goes on...
How can we create a complete picture when the puzzle pieces are unknown and constantly changing? The retirement of your dreams can’t be guaranteed, but we can increase our chances by setting achievable milestones throughout our working career and allowing for a large margin of error.
Retirement Savings Goals
- By age 30: One year’s salary in retirement savings
- By age 40: Three years' salary in retirement savings
- By age 50: Six years' salary in retirement savings
- By age 60: Eight years' salary in retirement savings
- At retirement age: Ten to twelve years' salary in retirement savings
Keep in mind that those salaries correspond with the salary at that specific age. So, if your salary is $100,000, you want $600,000 set aside at age fifty. If at 60, your salary is $250,000, your savings should add up to $2,000,000.
Now, you may be thinking, that’s impossible!
Don’t worry, we have you covered. Here’s how you do it:
- Start saving early - the earlier, the better
- Craft a financial plan with a fiduciary financial advisor
- Plug 20% of your salary into low-cost ETFs or Mutual Funds
- Utilize tax-advantaged retirement accounts
- Don’t interrupt the incredible power of compounding
By following these basic steps, you should reach the amount of money needed for retirement. If you are starting late, there are other ways to catch up, such as catch-up contributions or even delaying retirement!
Maximizing Income in Retirement
In some aspects, the question “How much do I need to retire” isn’t the right one to ask yourself. What is more important is what you want your monthly income to be, which is trickier than you might think. Your retirement portfolio is finite and, with every withdrawal, loses its ability to grow at a compound rate. Each year it will begin shrinking and shrinking, and a recession, a bear market, or runaway inflation could deal it a death blow. As you head into retirement, you want to focus on safeguarding your savings as if your life depended on it – because, in many ways, it does.
Fortunately, you’ll probably have fewer expenses in retirement. You’ll no longer have to sock away 20% of your income, which is already a massive burden off your shoulders. You’ll feel even greater financial relief if you can reduce your annual expenses by 20%. You can do this by going into retirement with no significant debts such as a mortgage, car payment, or college tuition payments for the kids.
Take Advantage of Government benefits
Sooner or later, Social Security and Medicare will kick in, reducing insurance and medical bills while giving you a stable, lifelong, inflation-adjusted income. You can also increase your Social Security income by delaying benefits until age 70, at which point you’ll receive 132% of your benefit – for life! This gives you a much-needed cushion when it comes to your monthly income.
Minimizing Taxes in Retirement
The next thing you need to look out for is taxes. Retirement is already fraught with financial dangers, so you want to ensure that you always stay in the lowest tax bracket possible. This is where tax-advantaged retirement accounts come into play, such as a healthy mix of both Traditional and Roth 401(K)s and Roth IRAs. Roth accounts, in particular, are of great benefit as they provide tax-free retirement income. A financial advisor can supply you with a tax-efficient order of withdrawal strategy from your various retirement accounts and advise on Roth conversion strategies.
Alternative Solutions
Finally, you may want to consider alternative income solutions to fill the gap should your well-laid-out plan not come to fruition. Though not for everyone, annuities or a Whole Life Insurance plan that builds cash value may just be a possible solution for you. Another strategy to keep costs low is relocating to a cheaper state or even out of the country. An average nest egg can lead to an average lifestyle in an expensive American city. Alternatively, it can provide an exciting lifestyle in a foreign country where the dollar stretches further.
In Conclusion
So, while it may be impossible to create a guaranteed retirement plan, we can take concrete steps to ensure we have as much money as possible in retirement by utilizing compound growth, having a financial and tax plan, and using alternative strategies as buffers.
Most importantly – remain flexible and keep your finances lean. With the expertise and guidance of a fiduciary financial advisor, you can feel confident that you are on the right track toward achieving your retirement goals and the question of whether you have enough to retire won’t keep you awake at night.
Don’t hesitate – start planning for your retirement today!
