Less than half of Americans have tried to calculate how much money they will need to have saved in order to retire.
In fact, an increasing number of people report that their retirement plan is simply to never stop working. Sometimes this is said because the person is so delightfully engaged with their work they can’t fathom stopping it. For others it’s because they fear it’s too late to get on track for retirement and they will literally have to keep working through their last breath. All of these feelings are understandable in a world where it’s quite possible that one could live in retirement for as many years as they worked. Think about it. Say you work from ages 25-65 and then you are “in retirement” from ages 65-105. It’s possible! That means the money you earn each year has to both fund that year’s expenses AND have enough of a slice tucked away so it can grow and invest over the intervening years to support you in retirement. Yowzer!
While this can sound overwhelming – the good news is that once you understand how to identify your “number” you can make a plan to get there. Here are some excellent resources to help you have truly golden years!
Can I Retire? How Much Money You Need to Retire and How to Manage Your Retirement Savings (explained in less than 100 pages!) Hands down, this slim book written by Michael Piper is my absolute favorite resource when it comes to retirement planning. In clear, concise and actionable language, Piper literally condenses a graduate-level course on this topic to something you can read in just a few hours. Upon reading you quite literally will come away with a solid understanding of… you guessed it: how much money you need to retire & how to manage your retirement savings. This book is gold.
How To Make Your Money Last As Long As You Do: The Indispensable Retirement Guide by Jane Bryant Quinn. For those of you who like to go deeper into the nitty-gritty of various retirement strategies (from optimizing the age at which you elect to begin Social Security, to the use of single premium immediate or deferred annuities) then this is the book for you. (However, if that prior sentence made your eye’s glaze over… stick with Piper’s book.) For those who enjoy learning about personal finance as a hobby,this really is the ultimate retirement reference guide.
Is it ever too early to start saving for retirement? No! Want to know why? Check out this short article from Vanguard showing how – thanks to the magic of compound interest – the earlier you start saving and investing for retirement, the less money you actually need to contribute to your ultimate nest egg from your own pocket. Yes, you heard that right. The earlier you start saving and investing for retirement the less it will cost you – literally!
I often get asked for recommendations of online retirement calculators that can be used to help individuals figure out how much in savings they should be targeting. Many financial institutions have excellent ones on their websites. That said, my top recommendation comes from a totally independent source, a government sponsored non-profit called ChooseToSave. Their retirement calculator can be accessed here. It will take about 15-20 minutes to input all the necessary information. Going through this exercise is a great use of time as it gives you a truly non-partial rough estimate of what to strive for!
Another angle to come at the question of “Can I afford to retire?” is to input what you currently have in savings plus how much you’d like to spend a year from that savings,and see how long that money will last you. There is a user-funded website I just adore for this purpose called FireCalc.com. You can play around with it on a “101 level” by adjusting the size of your portfolio until you achieve “success” at not running out of money before you run out of years. OR you can go to the “102 level” and set all sorts of customized variables for die-hard investment junkies.