Forget a Million Dollar Retirement: Focus on This | Smart Switch: Personal Finance


Retire a millionaire is not as good as it seems. A million dollars sounds like a lot of money, but when you spread it out over a few decades, it doesn’t really get you that far. If your goal is to have a comfortable retirement, you need a better plan than just aiming for this arbitrary savings target. This is why.

Why Saving $1 Million May Not Be Enough for Retirement

If you spread $1 million over 25 years of retirement, you’ll end up with a budget of only $40,000 per year. Along with Social Security and possibly a pension, that could be enough to finance a comfortable lifestyle today. But many people won’t retire for decades.

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Inflation will continue to drive up costs, and in a few years, $40,000 won’t buy as much as it does today. Also, most workers don’t qualify for a pension, and Social Security trust funds are running low. That could potentially lead to benefit cuts in the future.

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All of this suggests that today’s workers are going to need more savings to cover their retirement costs, especially if they plan on a long retirement. You may need $2 million or more, but setting your retirement savings goal at $2 million isn’t much better than having a $1 million savings goal. If you want to be sure you’re saving enough, you need a personalized retirement plan.

How much should you save for retirement?

There are a few ways to estimate your retirement costs. One of the easiest is to save 25 times your annual salary. This is supposed to help your money last at least 30 years, but it may not work that way. If you plan to make a lot of major purchases or travel a lot in retirement, you’ll want to create a cushion in your budget for these expenses.

You can also estimate your retirement expenses by thinking about what your estimated annual costs might be and how many years your retirement will last. Multiply your estimated annual expenses by the number of years in your retirement, adding 3% per year for inflation. If that sounds like a lot of math, a retirement calculator can do the hard part for you. It will also tell you how much you need to save each month (and overall) to cover these costs. Again, you may want to build a mattress if you’re planning some big purchases.

Don’t forget that you probably won’t have to fund your retirement on your own. Many workers qualify for Social Security, and if you’re married, your spouse may also receive a benefit. You can also get a 401(k) match from your employer.

Try to estimate how much you will receive from these sources and subtract it from your total savings goal. For example, if you figure you need to save $600 a month and you get $100 a month in employer match 401(k), then you only need to save $500 a month on your own.

If your savings goal seems out of reach, there are a few things you can do. First, try to find more cash to put toward retirement. You could try to cut back on expenses, start a side job, or seek a raise.

If that’s not possible, delaying retirement might work. It’s not ideal, but even a few months of delay can make a big difference. Doing this gives you more time to save while shortening the length of your retirement.

Delaying Social Security can also help, because each month after your full retirement age you avoid claiming increases in your benefits until you turn 70. If you expect to live to age 80 or older, you’ll probably get more money overall by waiting to enroll than by starting as early as possible. But if your health isn’t the best, it’s probably wiser to start earlier. You can estimate your Social Security benefit at various starting ages by creating a my Social Security account.

Try a few different scenarios until you find a plan that works for you. Then see if you can set up automatic retirement account contributions so you don’t forget to make them. Set a time to review your retirement plan each year as well. Take this opportunity to reevaluate your investment strategy and rethink your retirement goals. Once you have a proper plan in place, you’ll feel much more confident that you’re saving enough.

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