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Will you still be able to retire or should you work longer and save more?
You’ve been contributing diligently to your retirement accounts for years with the dream of being able to travel the world or just spend more time with your family. As you approach that magic date, those dreams may now seem shattered with the recent market downturn. Will you still be able to retire or should you work longer and save more? That’s a question we’ve been getting quite a bit lately. Here are some considerations to help you answer that big question:
1) What does retirement mean to you?
What would you do if you didn’t have to go to work? First of all, retirement is as much an emotional as a financial decision so make sure you actually want to retire. Lots of people find fulfillment at work and might miss it more than they realize.
Even if you know you’re emotionally ready, envisioning your lifestyle in retirement can help you determine how much money you’ll need to afford it. All things being equal, if you want to do a lot of international travel you will likely need more money than if you just want to spend more time relaxing at home with your family. Likewise, you’ll need less income if you’re planning to relocate to a lower cost area.
2) How much income will you need?
Once you’ve thought about what your lifestyle will be like, it’s time to sit down and look at the numbers. Financial planners typically say you need about 80% of the income you had while working. That’s partly because you won’t be saving for retirement or contributing 7.5% of your wages to Social Security and those two items alone can add up to about 20% of many people’s incomes. You also won’t be commuting to work, spending as much on business attire, and perhaps eating lunch out as often. On the other hand, you may be spending more on health care, travel, and long term care insurance.