How to Have Enough Money for Retirement

Did you know that we are living longer, more active lives?  While you might not feel it in the morning, but today’s 70-year-old male has a high probability to will live well into their 80’s – maybe even your early 90’s.

If this is the case then having enough money for retirement is going to a big challenge.  Here is why.  If you are like most people, then you probably expect to retire sometime in your 60’s.  However, living a longer, more active life means that you will be retired for 20 or even 30 years.

As such, you need to have a plan to make sure you have enough money for retirement.  Basically ‘age proofing’ your retirement plans so that you can live comfortably for as long as possible.  With that in mind, here are some tips you should consider.

  • Multiply it by 20

What is the it?  Your final pre-retirement salary, or the average of your final 10-years of working if your income is inconsistent.  As such, you will need to take this number and multiply it by 20 to figure out how much money you will need to live comfortably.

Now, this does not mean that you will need to have all the money in an account from day one.  Instead, you want to identify potential income sources that will get you close to this amount.

Granted, the math will never be precise.  I mean who can predict the future?  But know how much you will get from your pension, social security, and other savings will help you know if you need to take alternative measures, such as a reverse mortgage.   Which you can read about in a free guide here:

Now, if you are nowhere near the age of retirement, but are reading this article then you will want to multiply your salary by 20 plus half your age.  So, if you are 40, then you want to multiply your salary by 40 as this will help you to adjust for the effect of inflation over time.

  • Plan for Getting Sick

It’s inevitable, we will all get old and a big part of getting old is dealing with the accumulated ailments of an active life.  Unfortunately, the cost of healthcare in the U.S. is not going down and if you think just visiting the doctor is expensive, the check out the costs of spending time in a hospital or a nursing home.

While Medicare currently cannot reject any treatment based upon cost moves to reform the health insurance system in the U.S. might change this.  As such, retirees need to have a plan to cover healthcare expenses.

This might include Health Savings Accounts, long-term care insurance, or some other option.  If not, then they will risk either running out of money or having to declare bankruptcy to offset the cost of healthcare.

  • Retirement Doesn’t Always Mean That You Stop Working

Traditionally retirement meant that you would stop working altogether.  But for today’s seniors ‘retirement’ means transitioning to another stage of their career.  Maybe it’s volunteering or serving as a mentor.  While for others retirement is the transition to some form of informal work including taking on a part-time job or working as a freelancer.

No matter how you cut it retirement means an end to the 9-to-5 work day and transitioning to something more flexible.  The advantage of this approach is that today’s retirees can supplement their savings.  Even if it is only for five years, this means that can allow the balances in their accounts to grow before they start marking withdrawals.

  • Rule of Three

 Think of it as the three-legged stool for retirement planning: 1) managing withdrawals, 2) making adjustments, 3) have an emergency fund.   Without any of these legs, your retirement savings plan is sure to buckle under pressure.

Let’s start by looking at managing withdrawals.  It used to be that the 4% rule was considered the gold standard for managing withdrawals from your retirement account.  However, as we are living longer lives, this rule may no longer be relevant.  Instead, you want to plan withdrawals based on combination of your current needs and how this will fit into your long-term goals.

This leads us to the second leg – making adjustments.  Even the best economists are unable to accurately predict what will happen 20 years from now.  As such, you need to be able to make adjustments as you go.  Keep in mind your long-term goals, but adjust to make sure you are on a path that will get you there.

Lastly, is the idea of having an emergency fund.  Accidents do happen and you need to have a special account which can only be broken in case of fire.  Even if the account only has $1,000 in it, this will offset the blow of an unplanned event.

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