How much money do I need to retire comfortably?
This is a great but loaded question I get asked all the time. I’d like to say if you are asking this question that is a great step in the right direction. First, let’s take some self-inventory. On a monthly basis, how much do you spend on average? Whatever that bottom line is, generally that’s what we should be looking to achieve. Second, you’ll want to begin to start thinking of age range, when do you want to retire? If you are eligible for Social Security you will want take a look at how much you can claim at each age.
For most people there will be a gap between how much they spend and how much they will receive in social security. I had a strategy that I listed for this paragraph but unfortunately for compliance reasons I am unable to post specifically what I think is a great alternative. There are several categories of solutions worth exploring with a licensed professional — investment strategies, insurance-based products, and others — each with their own trade-offs.
That said, if you have been able to successfully hit your monthly bottom line that’s great but what about emergencies and unforeseen expenses? Your IRA will be your solution. Let’s go back to self inventory; what are some big expenses you foresee? It could be a new roof, a new car, a wedding, a long planned vacation. Any of these are valid reasons to take a second look at your IRA and see if that asset is greater than the bottom line of these major expenses. Along with that, unfortunately in Pennsylvania, we are still subject to property taxes, and federal income taxes based on the distributions from the IRA which will need to be taken into account. One last note, one of the major financial pillars is to have an emergency fund of at least 3 to 6 months worth of expenses, this should be a priority for your finances.If you are in the positive there, take a look at that margin, and if there is still an adequate amount left then that is the next big milestone to a comfortable retirement.
Lastly, we need to talk about the elephant in the room and that is what if I can do all of this but I somehow still fall behind because of inflation or some type of market crash? I would like to start with, generally in retirement average spending patterns shift. However, I would caveat that to saying, this is where investing in a professional can make all the difference. Having someone well versed and with experience can help you navigate sways in the market, and can adequately plan for your situation specifically.
I’ll end with this, if you are able to achieve all three of these factors I believe you are on your way to being comfortable, but let’s remember comfort is subjective so at the end of the day working towards certain financial goals specific to you is what counts. I would like to add I had an idea over the weekend for this exact topic. I’m calling it Nate’s Retirement Check List, and it is very simple but please remember this is a directional starting point, not a complete plan.. If you can meet the below criteria, you are on track to retiring comfortably:
Monthly Income > Monthly Expenses
Long Term Assets > Significant Future Expenses
Annual % in Growth > Annual % in Inflation
