As financial planners, one of the most asked questions we hear is, “Do I have enough?” The response is always, “That depends!”
First it depends on what is behind the question.
Do I have enough… to retire comfortably? (and what is comfortable is a whole discussion in and of itself.)
Do I have enough… to achieve my goals today and still retire while I can enjoy it? (What goals, what age?)
Do I have enough… to live the way I have been living? (How have you been living - getting by month to month, spending all you have, or saving a specific percentage of income?)
Do I have enough… to send my kids to college AND retire?
Am I making enough… income and portfolio investment returns to retire and live to 100? After all, my grandmother lived to 100!
Will my spouse have enough… after I’m gone? Have the two of you actually talked about what it might look like?
Am I saving enough… so that I can have financial peace of mind? (i.e. sleep at night)
Once we have defined the question, we must dig deeper to find the answer.
Because, you see, no two individuals, couples, families are alike. We may find some of the same basic needs, but the similarities end there. As unique as each of us are, that is how unique the answer is to the question “Do I have enough?”
According to Forbes Magazine, the following are retirement savings targets from well-known resources that can serve as benchmarks:
60% of pre-tax income - Fortune
70% of pre-tax income - Nerdwallet
70% of pre-tax income - Retirement Living Information Center
70% of pre-tax income - CNBC
75% of pre-tax income - T. Rowe Price
75% to 85% of pre-tax income - Vanguard
80% of pre-tax income - The Motley Fool
$1 million to $1.5 million - AARP
$1 million to $1.5 million - Retirement Living Information Center
8 times final pay at age 70 – Fidelity
10 times final pay at age 67 – Fidelity
10 to 12 times current income – AARP
11 times final pay – Money
12 times final pay at age 65 – Fidelity
As you can see, even the experts cannot completely agree – except on the fact that preparation is key if you are to have ENOUGH! So where is a good place to start?
To answer the question of “Do I have enough?” begins with knowing a few critical components of retirement:
1. What are your current income/expenses? What are your estimated expenses during retirement (and semi-retirement if that is part of your plan)
2. How do you see your anticipated lifestyle in retirement?
3. What is your expected income in retirement (social security, pensions, etc., and any shortfall that must be enhanced with retirement savings)
4. What are your projected costs of goals and expenses leading up to retirement (college expenses for children, costs of starting a new business, etc.)
Consider these examples: One person spends 85% of his/her current net income on rent/mortgage, groceries, and basic clothing. Another spends 35% of his/her current net income on essential monthly expenses and uses the rest for saving and paying off their mortgage early. The first one will more than likely need a greater percentage of their current salary in retirement than the second one will. Consider the difference in the answer to the question “Do I have enough? between the one who has planned to downsize in retirement and spend time with nearby family, possibly continuing to work part-time, as compared to the one who has waited until retirement to finally build that dream home and travel. Their retirement expenses and needs will look very different.
Some people would prefer the trade-off of retiring early at the expense of a lower standard of living whereas some would prefer to work longer for a higher lifestyle in retirement. The scenarios are endless.
If you are like many, seeing the benchmarks alone makes you cringe because you cannot picture reaching any of these goals. Could it be that you are young and with some strategic adjustments, you could save more in the early years and set yourself up to prepare for your retirement and meet other significant goals? Maybe instead you are in the final decade of your career and you could optimize your savings and develop a smarter investment strategy to grow your wealth while you are still working.
Studies have shown that working with an investment adviser makes it
much more likely that you will achieve your savings and investment goals.
Experience, professional guidance, and an unbiased second set of eyes can help you determine whether you are on the right track and what steps to implement by developing a comprehensive financial plan tailored to fit your needs.
Bridge Financial Planning offers fee-only planning for busy professionals who want to know the answer to the question, “Do I have enough?”
We offer a no cost, no obligation initial consultation to learn more about your needs and for us to share more about our process and philosophy on building a plan that meets your goals. Schedule your initial consultation HERE.