How Much Income Will You Need in Retirement?

 

One of the most common beliefs amongst pre-retirees is that their expenses will go way down once they retire. They believe that because they don’t have to drive to work every day and pay for lunches out, dry cleaning, and gasoline, their expenses will drop.

According to this Fox Business article, entitled, Workers are Dangerously Underestimating How Much Income They Need to Replace in Retirement, most people are shooting themselves in the foot by not knowing their actual numbers.

Tom Hegna, a highly respected economist and author of Paycheck & Playchecks: Retirement Solutions for Life and Don’t Worry, Retire Happy, says while in their working years, people spend the most money on Saturdays. That makes sense since it’s almost everyone’s day off, and that’s the day they get to do their hobbies, recreation and socialize. Well, guess what? As Tom Hegna says, every day is Saturday once you retire. Think about it. Your schedule is no longer ruled by work. So you get to do whatever you want. That usually takes money.

Calculating your retirement income needs can be an eye-opening experience. If you haven’t done so, use one of the many retirement income calculators available to you online. Prudential has a basic one that walks you through the process.

One of the reasons most people don’t take the time to do this all-important calculation, aside from being too busy, is because they’re afraid to look at the numbers. The numbers don’t lie. The truth is most people fall way short on retirement savings. As a culture, we lack adequate knowledge on what it will take to retire with enough money to live on in retirement. We’re told to max-fund our 401Ks (or at least get the match), diversify our portfolio and stay the course. But that only addresses one portion of our retirement plan.

What about planning for the distribution phase of our plan? Many financial risks need solutions that are not addressed by simply saving in a 401K or IRA. Future taxation rates and inflation are a couple of problem areas most people don’t foresee. But there are many more issues we need to consider.

The best way to prepare for our retirement needs is to educate ourselves. Don’t depend on your financial advisor or accountant to tell you what to do. Just as we need to advocate for our health care, we also need to defend our economic security.

We tend to buy into the belief that someone else will do this for us. But we cannot count on someone else to bail us out. Not even the government. Especially not the government. Social Security is a safety net, but it will not even come close to providing all the income we need.

The books I mentioned above, Paychecks and Playchecks: Retirement Solutions for Life and Don’t Worry, Retire Happy (affiliate links) are both great places to start.

So here are my financial coaching assignments for you today:

  1. Pick one book I mentioned above to educate and empower yourself. Then implement one of the author’s ideas.
  2. Find a retirement income calculator (or use the Prudential calculator I suggested above) and run your retirement income numbers.
  3. While you are doing the above tasks, notice any emotions that may come up. Self-awareness around our feelings about money is the key to empowerment. Choose not to let resistance hold you back from taking action toward your financial goals. I promise these baby steps will motivate you to take charge and bring you more financial peace of mind.

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