A common financial rule of thumb is that you should have $ 1 million in retirement savings, but that advice might be outdated now – you might actually need about double that. At least, that’s what most 401 (k) diet participants believe.
A recent survey by Schwab Retirement Plan Services found that, on average, 2021 plan members think they need to save $ 1.9 million for retirement. But how accurate is this number?
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$ 1.9 million is a good estimate of how much you’ll need in retirement
Nathan Voris, director of business strategy at Schwab Workplace Financial Services, thinks survey participants have a pretty good idea of ââwhat they’ll need in retirement. âI think for a poll like this that’s a pretty good number,â he said. âThat’s a rough range for a wide range of people. Obviously, retirement isn’t universal, but it’s kind of a mid-range for a lot of people. As Voris notes, there are many factors that will affect how much a person will actually need in retirement, so some may need more and others less. âThere is so much written about it, but I will sum it up in two or three things. One is, when do you want to retire? Voris said. âIf you retire at age 50, you have to plan for 45 years of living expenses. If it’s 67, allow 30 years. This has a huge factor in what your plan should be.
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âOne of the other levers is: what lifestyle are you going to have in retirement? ” He continued. “Where are you going to live? Are you going to live in California or Wyoming? Think about the state tax perspective. Are you going to have an active lifestyle? Or do you live near grandchildren where you’re going to be pretty There are many factors in the standard of living you want to live in retirement. Finally, the amount you need to have saved for retirement will depend on your other sources of income in retirement. This includes Social Security, pensions, assets and estates. “That stuff can be a factor in the future of retirement,” Voris said.
Why $ 1 Million Isn’t Enough
There are a number of factors that can force retirees to save a bigger nest egg, but one of the biggest is that people are living longer in retirement. âRetirement could be long,â Voris said. âThat idea of ââ20 years in retirement, maybe it was related to that million dollar figure. It is no longer a realistic expectation. That 4% rule, that $ 80,000 income bug is still there, but you could be retired for 25, 30, 35 years.
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How to save $ 1.9 million for retirement
âIf you tell someone they need to save $ 1.9 million, it can be intimidating at first glance. But there is a way to do it through planning and decision making processes that make it achievable, âsaid Voris. The first step is simply to make the choice to actively participate in your financial planning. âBe your own advocate. To be engaged. Start early. Take it seriously. Have a plan, âVoris said. âThe attitude to finances in retirement when you have a plan versus no is night and day. If you are just starting out, make sure you don’t leave free money on the table. “Make sure you get every penny offered by your employer, whether it’s a 401 (k) match or a discount on a stock plan or an HSA contribution – all these assets are free. Don’t leave any on the table, âVoris said. âApproach open enrollment with that mindset and make sure you’re getting the most out of your employer. “
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Voris also said he is mindful of debt, which can derail your retirement savings plans. âBe on the lookout for credit card debt, health care debt, and have a debt plan if you have multiple cards or have a car loan,â he said, noting that your plan should d Focus on paying off high interest debt first. You should also have an emergency savings fund so that you don’t have to take on more debt or dip into your retirement savings in the event of the unexpected .
âIn practice, for someone who is on the verge of being financially secure, a life event can be disastrous,â said Voris. “If the car breaks down or you run into medical debt or are behind on rent, that stuff can really put a damper on things.” Saving the equivalent of three to six months of living expenses can keep you on track with your retirement savings plans, even if something should happen.
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Next, Voris asked for help making a plan to meet your retirement goals. The Schwab survey found that only 40% of 401 (k) plan participants felt very confident in investment decisions made on their own, compared with 56% who felt very confident in investment decisions made with them. professional help. âFollow the advice that is offered to you,â said Voris. âMost 401 (k) record keepers have counseling and financial well-being accounts, and these items will help a person develop a plan. Have an engagement partner, have a sounding board. Increasing your confidence increases your ability to be successful from a savings and investment standpoint.
Finally, keep in mind that $ 1.9 million is a long-term goal – it’s not a lump sum you’re supposed to save overnight. âIf you think of someone who is 24 or 25, that’s a 35 to 40-year-old working savings career,â Voris said. âIt sounds intimidating – it’s a lot – but the ability to make it happen if you have a plan and if you save over 30, 35, 40 years is achievable. These $ 1.9 million [goal] should allow you to take small steps and make the right decisions gradually.
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This article originally appeared on GOBankingRates.com: $ 1 Million Is No Longer the Standard Chicken Egg – Here’s How Most Americans Think You Really Need to Retire