Oftentimes, when we think of retirement, we think of endless days of leisure spent traveling to exotic locales, enjoying our favorite pastimes or the company of loved ones and family.
But retirement isn’t just a goalpost in our journey through life, nor is it a starry-eyed dream about how the future will unfold.
What retirement looks like for many depends on a number―as in how much it will cost to retire. That number is a moving target that will always be specific to you as an individual―or as a couple, if you are married―and it will depend on a number of factors, some of which you have control over and some that you don’t. Here are six considerations to get you started:
1. Your savings
According to mainstream wisdom, right now you’ll need a nest egg of between $1 million to $1.5 million to retire comfortably. That’s because advances in healthcare and the fact that many of us will live an active lifestyle in retirement means we will likely live longer, healthier lives.
Some financial planners suggest that you create a plan based on the assumption that you may live to 95, give or take a few years. For a 65-year-old couple, there is a 31 percent chance that at least one person will live to age 95, according to the Society of Actuaries.
In the U.S., the average lifespan in 1960 was 70 years. By 2016, that number jumped to 79. The key takeaway is to save more in anticipation of living longer.
2. Your income
How much income you will need in retirement depends on your expected lifestyle. Let’s face it—nobody really wants to struggle in retirement.
Your income in retirement―social security, savings, pension plans, 401(k), and other investments―will all play a key role in exactly how your retirement pans out.
Some financial planners suggest you follow the 25 times rule of thumb. For example, suppose your projected annual expenses in year one of retirement are $90,000 and you have $40,000 of predictable income (Social Security, pension, and so on). To supplement your income, you’ll need to withdraw $50,000 annually.
Multiply $50,000 by 25, and you’ll need approximately $1,250,000 to retire.
3. Cost of living
As mentioned previously, there are some costs affecting retirement that are completely within your control such as where you choose to live. States like Mississippi, Kentucky, and Arkansas have the lowest overall cost of living, while states like Ohio and Iowa have the most affordable housing―a major consideration if you are still carrying a mortgage.
Although those states may not provide year-round fun in the sun like Florida and Hawaii, you’ll be able to keep a lot more of your retirement funds in your pocket.
4. Healthcare expenses
Despite efforts to keep medical costs down, they continue to rise anywhere between 5.5 and 7 percent annually.
What does that mean?
You can expect to pay more out of pocket for things like co-insurance and health insurance premiums over the course of your retirement. One way to alleviate those costs is to maintain a healthy lifestyle.
5. Travel plans
Many retirees become travel bugs with a desire to see the world―or maybe just to visit the grandkids. There are a lot of folks who will attest that there is nothing like these once-in-a-lifetime experiences, but by some estimates, a typical cruise can cost almost $1,800, not including other offshore spending. Multiply those costs by the number of excursions you plan to take during retirement and the number of trips you plan, and the costs quickly add up.
6. Willingness to downsize
Once the kids are grown and moved out, a big house can seem a bit too much―not just emotionally, but financially.
It may not fit your lifestyle anymore. That’s when it’s time to consider downsizing.
Some of the financial benefits of downsizing to a smaller home include reducing or eliminating mortgage payments, possibly lower property taxes and property insurance, and reduced utility costs. Downsizing may even free up equity in a home that can be used for investments or savings.
If downsizing seems appealing to you, consider where you spend most of your time in the home, not just the square footage, and make an effort to reduce possessions in order to reduce clutter.
Having enough money to retire depends on a number of factors including savings, healthcare expenses, housing costs, and anticipated lifestyle choices. Saving early, making wise investments, and anticipating how you will spend the money you have will determine whether you can afford to retire in comfort.
To help you plan for your future, try our free NaviPlan tool.