Today on MYM360 – we continue with a listener question part 2. Kevin asked, “How much money should I be saving for retirement?” Yesterday we talked about the first step in answering this question and that was to create a picture of your retirement and if you missed it, you might want to go back and listen to Episode 752.
Today, I want to focus on Step 2 which is to calculate how much your picture of retirement or financial freedom will cost you. You can ballpark it by choosing a percentage of your final working year’s income or you can create an after retirement budget where you compare what you pay today with how you think things will be different at retirement. The one caveat here is not to underestimate your costs because that could only end up hurting you. If you want to ballpark it, advisors suggest anywhere from 60 to 120 percent of your final income. That’s a wide range but there are a lot of factors to take into account and this is where it can get sticky. For example:
- if your home will paid off or you have very low rent payments, your employer or ex employer is covering your health insurance and your idea of retirement is to sit at home on the couch and watch tv, you may be safe with 60%
- But if one or all of those don’t apply to you, you may need move up to 80% or more
- And, if you plan to travel extensively, if you have poor health, or if you want to start a business you may need even more. Everyone’s situation is so different that it is difficult to make hard and fast rules on a topic like this.
Regardless of the method you choose, there is going to be a fair amount of guesswork unless you are close to retirement. So, I like to play it safe at least in the beginning and choose 100%. 100% of what you are making today. I think that’s a great starting point and you can adjust the amount over the years as you get more tangible information. Because let’s face it at the end of the day no one wants to willingly lower their standard of living in retirement and if you end up saving more than you need – well, I don’t see the problem.
Tomorrow we’ll finish answering Kevin’s question and I will be sending out the worksheets from this week to the members of the minding your money movement. If you are not a member and you want to join, simply visit our website at www.mym360.com look for the red join now button in the right hand corner and complete the form, then check your inbox.
That’s it for today! Thanks for listening and as always remember that minding your money really is the path to a richer life!