How Much Money Do I Need to Retire?
Financial Advice from Founder and CEO of Sofia Financial, Stephanie McCullough
Stephanie McCullough, Founder and CEO of Sofia Financial, has seen a lot of clients who are dealing with divorce. While the advice below applies to anyone aiming towards a retirement goal, it’s especially important for those navigating divorce and retirement.
If you are like many women I work with, you probably wonder about some variations of the question, “Will I be able to stop working someday and still support myself?” The specifics of each specific woman’s situation will vary, but you have plenty of company if you are unsure about what you’ll need to enjoy a comfortable retirement.
You may remember a series of commercials a few years back from one of the big financial companies. People were shown walking around the streets of a city with numbers floating in thought bubbles above their heads. The ads suggested that it was simply a matter of doing a quick calculation, coming up with a dollar figure, then saving like crazy to reach that number. Once you achieved it, you could leave your desk, turn off the light and lock the door, and you’d be set for life.
If only it were that simple.
Retirement is a multi-variable equation.
In reality, the amount of money you will need for retirement involves many factors. Some you have very little control over, as in the following:
- How many years will I have between retirement and the end of my life?
- How much will the cost of living rise over my lifetime?
- How much will my investments grow?
The good news is that you actually have a significant amount of control over your financial future. The most important piece is determining how much you need to spend each year. Let me illustrate with a story.
Caren works hard in her corporate job and has always had a clear vision for her retirement. At age 62 she would buy a condo in Florida so she could spend winters there and summers in her house in Pennsylvania. She would travel to Europe and Asia,something she had always wanted to do but hadn’t been able to when she was raising her kids and working.
Don’t start with the numbers.
When Caren came to my office she wanted to be sure she was on track. She brought the statements from her 401(k), IRA, savings account and Social Security. But we did not begin by looking at her numbers.
First, I asked her a series of questions. I wanted to know what made her happy and who was important to her. I asked how she planned to fill her days once she stopped working.
I discovered her daughter was about to have a baby. When I asked what she felt were the most fulfilling aspects of her job, she told me she especially loved how much room she had to express her creativity. Also, she enjoyed working with a team and nurturing younger employees.
When we examined how those passions matched up with her retirement scenario, she realized that her plan didn’t include the kinds of activities that gave her such meaning, purpose, and pleasure.
Then we looked at the numbers – how much she had saved, what she was contributing to her savings each year, and her retirement income sources. The numbers weren’t rosy.
As a result of our conversation and my analysis, Caren revised her plans for retirement.
She decided to work to age 65. This would bring several financial benefits: (1) her Social Security benefit would be higher; (2) she had three more years to maximize her savings; and (3) her employer would continue to add to her 401k.
She decided to position herself for a slightly different role in her company – one that involved more mentoring and the opportunity to create training curricula for managers. This made the prospect of working longer more of an opportunity than a burden.
She decided to take steps now that would help her establish a consulting practice in the future. Taking on project work on her terms and schedule could provide extra income after retirement and keep her connected with professional colleagues.
She committed to traveling more now instead of putting it off. This way she could take her full vacation time and pay for it out of income instead of savings. This too made the prospect of working longer more palatable.
Finally, she rethought her dream of purchasing a Florida condo and instead will try renting. Not only would buying a second home tie up a lot of assets and limit what she could spend on travel, but it would also keep her away from her grandbaby.
Now it’s your turn.
Do you have a burning financial worry about the future? Do you dream of retiring? First, ask the deeper questions: what fills you up, gives you energy, and fills you with joy? What do you really want “retirement” to look like? Then run your numbers and do your calculations. Do you have enough for a comfortable retirement? Do your goals include the values and activities that bring meaning to your life? Is it time for some rethinking of your vision?
Most people spend more time planning their annual vacation than their retirement. Spend some time on these questions to set yourself up for a happier future!