By Taylor J. Kovar – CEO/Founder, Kovar Wealth Management
–Hey Taylor: My spouse and I have been diligently reviewing our financial situation and contemplating retirement, but we’ve encountered a stumbling block: we’re unsure of the total sum we need for our retirement. Is there a way to determine our retirement savings target?
–Hey Mark: We’re all advised to prepare for retirement, yet seldom does anyone explain precisely how much we should aim to save. However, there are some methods to pinpoint your savings objectives. Remember, your target figure will depend on a variety of factors, so don’t worry if your number is different from those of your peers.
First, establish a projected income for your post-work years. Much like your current monthly income, you’ll need a regular income when you stop working. Anticipating future financial requirements can be complex, as it does require some degree of foresight.
You can begin by reviewing your current spending habits and consider how these expenses might change upon retirement. Do you expect to travel more? Reduced the amount you are driving? Are you considering relocating to a more affordable area? All of these variables will affect your ultimate savings goal.
Alongside these considerations, you should also factor in wealth-related aspects. If you’re a high earner currently, you’ll be aware that Social Security may not replace a substantial portion of your income. The specifics of your retirement account should also be examined, as this will affect the taxation of your income.
While it’s beneficial to perform your own calculations, many aim to retire on around 80 percent of their current annual income. For example, if you and your spouse currently earn a combined $100,000 per year, you should strive to save enough to provide an annual income of $80,000 upon retirement. This figure should account for Social Security payments, as well as savings from no longer paying income tax.
One challenging element of retirement planning is considering life expectancy. It’s a difficult topic, but it’s integral to these calculations. A healthy lifestyle could certainly contribute to a longer, happier retirement, but nonetheless, longevity is a factor that must be factored into your calculations.
After initial calculations, there are several retirement calculators available that can help you determine how much to save each year up to your 65th birthday. If you’re thorough and honest with your calculations, you can arrive at a relatively accurate estimate.
I commend your proactive approach to retirement planning, Mark. Continue with this foresight and diligent planning, and both you and your spouse will be in an advantageous position for a comfortable retirement.
