By Oscar Casas, CFP®, CRPC®, MPAS®, ABFP℠
Outliving your income is a serious concern for many people. That’s why it is crucial to establish a carefully crafted retirement income plan—a plan that is adaptable to changing circumstances in your life and is not overly dependent on market returns or economic conditions.
Is there a specific amount of money required for a tranquil retirement? According to most experts, retirees should anticipate spending between 55-80% of their pre-retirement annual income per year. But is this answer truly accurate?
Determining the ideal retirement strategy involves considering numerous factors, and the definition of “tranquil” can vary greatly from person to person. Your vision of a tranquil retirement may differ significantly from that of your friends or neighbors. Perhaps you plan to spend your golden years close to home, surrounded by family and friends. Alternatively, you may dream of traveling the world or relocating to a warm and sunny destination. Regardless of your retirement aspirations, it is critical to estimate the associated costs. Consider the following questions:
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.
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. If you plan to work during retirement, it should be taken into consideration in your retirement income strategy.
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 a plan for healthcare coverage another way. You may be able to hop on 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. Don’t let this be a planning oversight that prevents you from retiring comfortably!
Will You Have Any Dependents?
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 in 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.
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.
A Plan Tailored to YOU
Finding the ideal amount needed for your retirement would be much simpler if it could be predicted by a straightforward formula or percentage. But to accurately assess your specific situation, your magic number needs a comprehensive analysis of your financial circumstances, family history, and personal goals.
At Tranquility Path Investment Advisors, our mission is to simplify financial management and prioritize your individual goals and objectives, which includes determining the specific savings required for your retirement. Ideally, you will have multiple income streams, each income stream from a different source, all with varying levels of probability to last your lifetime. When you make the decision to let us serve you, we cover this key component of your road map during our second session. We’ll show you which assets can provide you income, an estimate of how much, and a general probability of success. All this comes in our second meeting after the initial discovery session.
By entrusting us with the responsibility of managing your money with utmost care and integrity, we’ll work to alleviate the burden of your financial worries, allowing you to enjoy a retirement plan that’s tailored to your needs. If you’re seeking a financial planner who can help you strike the right balance between living the life you desire and safeguarding your nest egg, schedule an introductory meeting online or reach us at (732) 856-4324. Let’s embark on this journey together.
About Oscar
Oscar Casas is the chief executive officer at Tranquility Path Investment Advisors, an independent Registered Investment Advisor firm dedicated to putting their clients first, always. Oscar has over a decade of experience helping clients plan for a confident retirement. He is known for being an empathetic and compassionate listener and for prioritizing his clients’ needs and goals above all else. He acts as a coach, advising his pre-retiree and retiree clients through all the ups and downs on their financial journey. He loves that he has the opportunity to make a difference in people’s lives and take some of the stress off their shoulders.
Oscar has a bachelor’s degree in finance, a master’s degree in personal financial planning, and is a CERTIFIED FINANCIAL PLANNER™, Chartered Retirement Planning Counselor℠, Master Planner Advanced StudiesSM and Accredited Behavioral Finance Professional℠ professional. When he’s not working, you can find him enjoying the outdoors with his three children. He is an avid tennis player who also loves golf, the beach, snowboarding, traveling, and volunteering with the Scouts.
