Meridian Blog

Most people have plans to retire and even have a fairly good idea of how they’ll use that new-found free time, but few actually know how much money they’ll need to save in order to afford retirement. There’s an old age golden rule of having $1 million set aside for you to retire, but everyone is unique and retirement is not a “one size fits all” concept.

If you’re also scratching your head wondering how much you should have saved and whether or not you’re on track, just relax – you’re not alone.

These days, there are no shortage of ways to determine your estimated retirement savings needs, but here’s the thing: this calculation varies for everyone.

The key is being honest with yourself about your needs, wants, expenses, and goals for this phase of your life. The amount you need to have saved largely depends on these factors.

The first thing you’ll want to do to begin preparing for retirement is to determine exactly when you plan to retire. After all, you can’t build a plan with a moving target. Set aside time to determine when might work best for you to retire and then establish a savings plan accordingly.

Next, you’ll need to consider those living expenses. To start, consider your own current situation and living expenses. Do you anticipate you’ll increase your expenses once you retire or do you envision these expenses decreasing? For example, if you currently have a home full of children or other dependents you support, your expenses may look vastly different years from now when those children no longer live with you and/or you’ve got a significantly reduced mortgage. On the other hand, if you know that you want to travel, take up new hobbies, potentially buy a vacation home, or engage in any other activity that may add to your expenses during your retired years, you’d want to plan accordingly for those expenses to be greater. Another added retirement expense that is often overlooked is the increased cost of healthcare (more on this in a moment).

The next thing to ponder? What type of income you can rely on during this period. For instance, will you rely on income from a pension, social security, an annuity, investments (or other source of income)? If so, is this income or your anticipated savings enough to cover your anticipated expenses? If not, it may be worthwhile to consider making changes to your lifestyle, reducing expenses, or finding additional opportunities for supplemental income. You may want to down size your home and use the opportunity to reap the benefits of your equity in your property to help fund your retirement.

Another thing to consider is your health and potential need for long-term care. How will you plan to address your health needs and living situation if/when aging becomes a factor? Most long-term care insurance policies are incredibly expensive, even if you are in good health. We suggest having enough saved to cover these costs out of pocket. Talk with your family about what your desires are for long-term care and what that would look like for you personally & financially.

Finally, you’ll want to make sure you’re considering your legacy. What will you want to leave behind or do with your time? Planning ahead will help ensure you’re able to truly accomplish those goals you have for yourself at this life stage.

What to do if you feel behind…

According to Fidelity, you should aim to save at least 1x your salary by age 30, 3x by age 40, 6x by 50, 8x by 60, and 10x by age 67.

So, if you’re feeling behind, here are some tips to use to get back on track:

1. 1. Meet with your financial advisor to get started or update your financial plan.
   2. Live within your means.
   3. Increase your contributions to your 401(k) or other employer-sponsored retirement plan.
   4. Open an Individual Retirement Account (IRA) and aim to max out the contribution amount each year. Sarah Irving’s blog last week talked about how there is still time to make your contribution count towards 2021!
   5. Begin investing – compound interest is an amazing thing and the sooner you start, the more positive of an impact it will have!
   6. Adjust your investments periodically – work with your financial advisor to determine if you’re taking on the appropriate amount of risk for your situation.
   7. Revisit your budget – can you eliminate any unnecessary spending in order to contribute more towards your retirement?
   8. Supplement your income, if need be. Adding in a side hustle is an easy way to do this.