Have you made a New Year's resolution to do something about planning for retirement, but haven't gotten started yet or need some help getting started?
A key starting point is to focus on answering three questions that will help lay out the preliminary framework for getting to your retirement nest egg number.
1. What kind of retirement lifestyle do you want - look at your current spending and current budget. Your work-related expenses and your mortgage, if you have one, could potentially be replaced by medical bills and LTC expenses.
2. When do you want to retire - the earlier you retire, the more you'll need to save and of course it must last over a longer period time.
3. Longevity - this is a key factor in the total equation. Ask yourself, how long do you think you will be in retirement? For planning purposes, it's not uncommon to assume living to age 90 and beyond - and if your family has a history of longevity, you should probably plan on living just as long as your current elders.
Get all the numbers you've come up with to these three questions and put them into a retirement calculator that you can find on the internet and it should give you a good ballpark number to shoot for. And don't be surprised by the size of the results you receive.
Let's say you are 70 years old right now and want to keep the same $40k to $100k lifestyle in retirement that you're currently maintaining. You would need to have roughly $900K to $2.3MM of cash flow and savings to your name to live to 100 years old.
If you're 30 years old and just starting out, if you want the $40k lifestyle, you'll need to save roughly $860 per month. The $100k lifestyle requires roughly $1,250 monthly and both require an average return of 7%.
The beauty of the planning process is that you have choices - there are many that come to mind, that you can control, to help yourself get to where you need to go:
1. Save more now and during retirement
2. Spend less now and in retirement
3. Choose an appropriate asset allocation between cash stocks and bonds that will get you to your target nest egg number with the least amount of risk so you can still sleep at night
4. And of course the last, and probably not the most favorite option, is to retire later.
A combination of the above suggestions along with some help from a professional advisor will put you on the right track to setting up a workable long term plan that you can stick to from the start of your career through a very comfortable life in retirement.
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