How Much Money Do I Need to Maintain My Lifestyle in Retirement?

2023-7_How Much Money Do I Need to Maintain My Lifestyle in Retirement_

By Corey Gragg, CFP®

There’s a question we all ask ourselves at some point: Will I have enough money to  retire and live the lifestyle that I want  in retirement?

The prevailing school of thought is that we should be saving 10 to 15% of our annual pre-tax income each year including any employer match leading up to retirement. Of course, this rule of thumb is just that—a rule of thumb. 

To find your unique “magic number” for retirement, there are many variables to consider. These variables include your current and future income, savings, expenses, debt, and especially the lifestyle you desire for your retirement. Consider the following questions when determining your magic number for your unique retirement.

What’s Your Ideal Retirement Date?

Your age (now and in retirement) is one of the most significant factors to consider when determining how much money you need to save. If you want to retire early, you’ll have fewer years to save for a longer retirement. And if you start claiming Social Security benefits before full retirement age, you’ll also have to factor in a smaller monthly benefit amount.

The state of the stock market can also play a role in how much money you need and how long your money lasts. Those who plan for the inevitability of market volatility fare better in retirement than those who don’t. Of course, you have no way of knowing if we’ll be in a bear or bull market when you retire—but these are scenarios you must account for in your retirement planning.  

What Do You Want Your Retirement Life to Look Like?

Have you thought about the type of lifestyle you want to have in retirement? If you know you want to travel, play golf, or spend time with your grandkids, you need to factor in what that looks like, and how much it will cost.

For example, if you plan to travel, you’ll need to consider: 

  • Will you be traveling stateside or internationally?
  • How often do you want to travel?
  • How would you like to get there? (e.g., car, plane, or RV)
  • Where would you like to stay? (e.g., 5-star hotel, Airbnb, with family members)
  • Will you be traveling with your family? Would you like to cover their expenses, too?
  • Will you maintain your primary residence? If so, who will watch your house and maintain it while you’re gone?

Even if your dream is simply to spend time with your grandkids, you’ll still need to think through your expectations and expenses. To some people, “spending time with grandkids” means babysitting a few times a week. To others, it means footing the bill for all-expenses-paid trips to various destinations of their choosing. Whatever it is you want to do with your time, map out the details so you can have a clear picture of how much you’ll need to make it a reality. 

Will You Earn an Income in Retirement?

Working during your retirement is a great way to stay active, keep your mind sharp, and maintain a sense of purpose. Some retirees choose to build a second career through consulting. Others decide to pick up a low-stress, part-time job at a family office or retail store. No matter what you do, if you plan to work during retirement, you won’t have to save as much to live comfortably. 

How Much Debt Do You Carry?

Bringing debt into retirement has two major drawbacks: 

  1. It reduces the amount of cash flow you have for housing, travel, hobbies, and other non-essential purchases.
  2. It can potentially drain your retirement savings quicker, which means you may run out of money or have to adjust your lifestyle down the road.  

If you carry debt, take a close look at what you owe and figure out how much cash flow you’ll need in retirement to cover these expenses. Some people prefer to pay off any high-interest debt before they retire. Others will take it one step further by paying down their mortgage and auto loans, too.

What Kind of Healthcare Coverage Do You Expect to Have?

Right now, you most likely have health insurance through your employer. When you stop working, you’ll need to have another plan for healthcare coverage. You may be able to join your spouse’s plan, if he or she is still working. Or you can get coverage through the healthcare marketplace. You qualify for Medicare starting at age 65, but even then, you may want additional coverage to pay for prescription drugs, dental care, eye exams, and other expenses. 

Retirees sometimes fail to fully plan for expenses during the later stages of retirement, and medical care often tops the list. It’s estimated that retirees will use 15% of their income for health expenses, and the average retired couple could see healthcare expenses of approximately $300,000 after age 65. Don’t let this be a planning oversight that prevents you from retiring comfortably!

Will You Be Supporting Any Children or Grandchildren?

Your kids may be grown and out of the house by the time you retire, but that doesn’t necessarily mean you’ll stop supporting them financially. Over 79% of parents said they still give financial support to their adult children (ages 18 to 34), according to a Merrill Lynch study, and the COVID-19 pandemic caused a boomerang effect, with 67% of adult children still living at home with their parents after returning home due to the need of financial help.

And even if you aren’t helping your kids out with daily expenses, you may want to contribute to their weddings or down payments on home purchases down the road.  

Where Will You Live?

Housing may be your biggest expense in retirement. And even if your home is paid off, you might eventually consider downsizing to a smaller place that requires less maintenance and has less expensive utility costs. 

To save even more, you can think about relocating to an area that has an overall lower cost of living. For example, the cost of living in Orlando, FL, is only 3.3% higher than the national U.S. average, whereas the cost of living in Los Angeles, CA, is 76.2% higher than the U.S average. Clearly, where you live can make a huge impact on the overall cost of retirement.

What Is Your Family’s Health History?

The average 65-year-old man has a 35% chance of living until age 90; that rate goes up to 46% for a woman the same age. And while life expectancy is unpredictable, if your family has a strong history of living to age 90 and beyond, your chances may be even greater than these odds. In this case, you’ll need to determine if your planned retirement savings will last long enough. 

Similarly, if you have known health conditions and/or a family history of health problems that could affect your life span, you’ll want to consider this, too. 

Your Unique Retirement Needs a Unique Plan

It would be nice (and much less complex) if the amount needed for your ideal retirement came down to a simple formula or percentage. On the contrary, to apply to your unique situation, your “magic number” requires a deep dive into your financial situation, priorities, and goals.

At Elk River Wealth Management, we strive to simplify financial planning and prioritize your needs. At the heart of everything we do is our commitment to delivering a complete experience to help you build on your successes and manage every aspect of your financial life, including how much you need to save for your ideal retirement. By collaborating with us, knowing we will steward your money with care and integrity, we take the burden off your shoulders so you can live without financial worry within a personalized retirement plan. 

Would you like to partner with a financial planner who can help you find the right balance between living the life you want and safeguarding your nest egg? We invite you to schedule an introductory meeting by emailing or calling (720) 452-1901.

About Corey

Corey Gragg is the Director of Financial Planning at Elk River Wealth Management, an independent investment advisory firm that embraces a financial planning platform in order to deliver comprehensive wealth management solutions to clients in Colorado, Arizona, Nebraska, and across the United States. Corey is an experienced wealth advisor that works with individuals, families, and business owners to put together goal-based, comprehensive financial plans. What he enjoys most is working with families to provide financial independence and peace of mind through detailed planning and seeing them reach their goals. He takes his clients’ trust in him seriously and strives to continue to earn it every day.

Prior to joining Elk River Wealth Management, Corey held various sales and advisory roles with American Century Investments, located in Kansas City. Corey holds an accounting & finance degree from Washburn University in Topeka, Kansas, a Master of Science in Personal Financial Planning through The College for Financial Planning, and the CERTIFIED FINANCIAL PLANNER™ certification. Corey lives and works in Denver, Colorado. Outside of work, he loves to hike, run, golf, and spend time with family and friends. To learn more about Corey, connect with him on LinkedIn.