If your approach to retirement planning involves saving what you can, when you can, you should know that it really helps to have a goal amount of savings in mind. And while there are a number of online retirement income calculators that you can use to start considering how much you will need, it can be of great benefit to consult with a Fee-Only financial planner to get advice that is tailored to your lifestyle.
The Washington Post finance columnist Michelle Singletary has discussed “Calculating the ‘replacement rate.’ and for those that don’t know, this is an estimate of the percentage of your pre-retirement income you’ll need to have once you stop working. In her column, Singletary demonstrates why a generic replacement rate may not be helpful.
There was a time when people expected to retire and live simply, most likely in a home that they already owned. This may be the reality for many and if that is the case for you, you may be just fine with retiring on 40-50% of what you earned pre-retirement.
However, as Singletary points out, the golden years don’t look like they used to. Whether it’s because you want a more lavish lifestyle, will need to spend money on visits to children and grandchildren in other states, or will need to support adult children longer than expected, there is a good chance that you will need more than 50% of your pre-retirement income.
Location, Location, Location
Where you retire will also have a big effect on how much money you will need. If you retire near or with friends or family who will share costs for things like food or transportation with you, you will spend less than someone who is more isolated. Earning pre-retirement income in or moving to a high-income tax state after retirement can also effect how much you will need.
While Singletary interviewed an expert who says he has seen people overestimate their replacement rate, she writes that overall people are not saving enough and this is where the perspective of a Fee-Only financial planner can help you stay on track.