The most frequent question I receive from clients is how much do they need to save for retirement. The answer is more complex than expected. More and more people have big plans for retirement, such as traveling the world, philanthropic activities, going back to college, or starting a second career. The variety of options means there are a variety of financial choices, with no one size fits all solution.
The chart at the bottom of the page provides general saving guidelines for retirement. When making a comparison account for all your sources of savings, including company deferred compensation plans and employer matching contributions. The recommended levels of savings are suitable for those people who still are not sure about their retirement goals. But, if you have some sort of idea, it is essential you assess your situation and create a specific plan.
A key benefit I see in creating a plan is the peace of mind people get from turning a somewhat elusive dream into a clear plan of action. Some clients find they are saving appropriately and can relax a little, enjoy life to its fullest, and spend more time away from work to foster their personal needs. Of course, there are people who find out they need to save more, but now they know and can act upon it.
When I meet with clients to discuss retirement we always start with their goals. Next, I build a model to determine if there are gaps between their current situation and goals. We work together to incorporate their intentions for retirement date, lifestyle, and income needs into the model. We also develop estimates about their health, longevity, and other external factors such as inflation and investment performance. After analyzing the results, we determine the best course of action and begin implementing a plan.
I often hear people say their finances lack strategy and are haphazardly put together. Each person should have their own plan that is both relevant and unique based on their personal circumstances. Anything else is most likely a cookie cutter version of someone else’s dream for you and not your own.