After working hard your entire adult life, you deserve to enjoy your golden years. Therefore, it’s important to know how much money you’ll need to live well, so you can make sure you’re saving enough now.
Jay Zigmont, PhD, CFP, founder of Childfree Wealth, said each person’s retirement number will vary based on their expenses. “When looking at your final 30 years, your number will differ if you have a goal to pass on money to the next generation or to die with zero,” he said. “You will make different choices if you only want to cover your expenses.”
To live better in your final 30 years, he said you’ll need a plan for long-term care. “Medicare does not pay for long-term care and Medicaid will only cover long-term care after you have spent all of your money,” he said. “Additionally, Medicaid care tends to be not the best.”
The average cost of a private room in a nursing home is $108,405 per year — $94,900 for a shared room — according to the American Council on Aging. “You need to have a plan to pay for long-term care or put a long-term care insurance policy in place to cover some — or all — of the cost,” he said.
While there’s no set dollar value every person needs to have saved for carefree retirement living, Kim Gattis, senior vice president, senior financial planner at UMB Bank, shared tips to help guide your savings strategy depending on your age.
Savings Strategies By Age
Before Age 50
“If you are younger than 50, make sure you are contributing at least the minimum amount that your employer requires [to your 401(k)] to receive the employer match,” Gattis said. “This is free money towards your retirement goals that you don’t want to pass up.”
In Your 50s
“At the end of your 50s, depending on your financial goals, you may want to have up to eight times your annual salary in retirement savings and examine future opportunities to streamline your expenses,” she said. “This is also the time to begin retirement lifestyle planning which may include relocating or downsizing your primary residence, as well as some changes to your everyday expenses.”
In Your 60s
“Depending on your desired retirement age, this may be a good time to develop a new budget that better represents your retirement goals, retirement income, expenses, debt and other important considerations,” she said. You should carefully evaluate when you start receiving Social Security or pension payments.”
If you decide to start receiving Social Security payments at the minimum age of 62, she said you could receive lower payments over a potentially longer time period. “Waiting until full retirement age generally means larger monthly checks,” she said.
In Your 70s
By this point in your life, she said you may be fully retired or still working part-time.
“Just because you’ve retired, doesn’t mean you should stop investing,” she said. “Continuing to maintain [an] active investment strategy will help ensure adequate income for your lifetime, as well as your fulfilling any legacy goals you may have.”
5 Tips To Maximize Retirement Savings
Planning for retirement is a consistent task, so here’s some advice to make sure you are setting yourself up for a better one.
Calculate Your Monthly Expenses
To calculate how much money you’ll need to live well in your final 30 years, Sam Dallow, co-founder of Counting King, recommended taking a close look at your current expenses and lifestyle.
“Consider your monthly spending on necessities like housing, food, utilities, transportation, healthcare and any other recurring expenses,” he said. “I suggest factoring in discretionary expenses like travel, hobbies and entertainment, which can vary greatly among individuals.”
At least some of your expenses will likely be different during your retirement years, so he said to estimate these adjustments.
“For instance, you may have paid off your mortgage by then, reducing your housing costs,” he said. “Conversely, healthcare expenses tend to rise as we age, so think about how you’ll account for potential medical costs.”
He said you can meet with a financial advisor or use an online retirement calculator to help with these estimations.
Play the Numbers Game
After you have a rough estimate of your annual expenses during retirement, he said to multiply that figure by 30 years.
“Remember to adjust for inflation, as prices tend to rise over time,” he said. “This will give you a ballpark figure for the total amount you need to live comfortably in your final three decades.”
Start Saving More Money
If after doing your calculations you realize you’re behind on your savings, he said not to panic.
“Start saving more aggressively by allocating a higher percentage of your income towards retirement,” he said. “Cut back on unnecessary expenses and redirect those funds towards your future.”
If you’re over age 50, Mark Henry, founder and CEO at Alloy Wealth Management, said to take advantage of catch-up contributions.
“Catch-up contributions allow you to contribute up to an additional $7,500 to your 401(k) or $1,000 to an IRA,” he said. “The catch-up limits for a 401(k) are adjusted annually for inflation, so be sure to keep up with them year after year.”
It’s possible your employer offers a matching benefit that will make it easier to save faster.
“If your employer offers 401(k) matching, be sure to max out contributions or at least contribute enough to meet match requirements,” he said. “You’re essentially leaving free money on the table if you don’t take full advantage of employer matching while you are still working.”
Get a Second Job
This might not sound appealing right now, but getting a second job now can ensure you’ll be able to sit back and relax later in life.
“You may also want to consider getting a second job to create an extra stream of income, especially as we face record inflation,” he said. “Even if you only work part-time at a second job, you can use the extra income to boost retirement savings and max out a 401(k) or [an] IRA.”
Saving for retirement requires a lot of careful planning, sacrifices and hard work. However, taking measures now to ensure you can fully enjoy your golden years is something you won’t regret.