How much do you need to retire?  A recent study done by Charles Schwab Retirement Plan Services earlier this year revealed that Americans believe they need to save $1.9 million, on average, to be able to retire.  The study also indicated a wide range of responses, especially between generations.  In the study, baby boomers think they will need about $1.6 million to retire comfortably while Millennial and Gen X respondents think they would need $2 million to retire.  What’s your real number?  How much do you need to retire?  In this blog post, we will discuss these common questions.

As with anything, the answer to the golden question about your golden years is, “it depends”.  A wide range of factors can dictate how much you need to have saved to retire comfortably.  In addition, each person has a different “target number” for their golden years.  Common factors that can affect how much you will need are:

  • Your Goals and Expenses – your goals and financial priorities will have the largest impact on how much you need to save for retirement. If you want to travel the world or buy that dream vacation home, you will need to save more than someone who plans on a low-key retirement.  Perhaps you already have that vacation condo picked out and there is no way you are going to retire unless you can afford it.  If this is your top priority, an expensive priority, you would need more in your nest egg.  However, if that vacation home is low on the priority list, then you probably don’t need to sock away as much.
  • Your retirement date – perhaps the most overlooked aspect of retirement planning is when you retire. The official date you set for retirement has a substantial impact on the size of the nest egg you will need.  The earlier you retire, the more you will need to have saved.  One of the obvious reasons is that you will inevitably have to fund a longer retirement horizon.  This means funding more years of routine expenses, healthcare costs, and travel without earned income.  Retiring sooner also means fewer years of saving, fewer years of compounding investment returns, etc.  Pushing that retirement date back a year or two, maybe three, can have a profound impact on “your number”.
  • Your portfolio – this is where most people focus their energy. Ultimately, your overall asset allocation and investment selection will not only impact the amount you need to retire, but it will also impact your ability to sustain your desired lifestyle in retirement.  However, the relative importance is not as much as people think.  Other factors of a financial plan are just as important such as your goals, retirement date, and overall tax-efficiency.  Emphasizing all these factors together, and not just your portfolio, will have a significant impact on your ability to enjoy the retirement you want.
  • Other important factors – we have only discussed 3 common elements that impact how much you need for retirement. However, there is a multitude of factors to consider.  Things such as the allocation of your savings (i.e. how much is in traditional retirement accounts vs. Roth retirement accounts) can greatly impact the amount of projected taxes you may pay during your retirement.  Of course, the more that Uncle Sam can take from your nest egg, the larger that nest egg needs to be (for more on this topic please see our last post).  Other factors such as inflation and projected tax rates can also have an impact on how much you need to retire.

The study from Charles Schwab not only asked how much you need to retire, but it also asked respondents if they believed their goals were out of reach.  Nearly two-thirds of respondents said they felt they were only “somewhat likely” or “not likely” to achieve their retirement goals.  The COVID-19 pandemic, and ensuing economic fallout, has undoubtedly knocked many investors off track to achieving their retirement goals.  If you would like help getting back on track or finding “your number” for retirement, please contact us today.

Author: Brett Fry

Brett rejoined Forteris Wealth Management this year and is managing our office in Dallas, TX.  While helping clients plan for retirement, education and generational asset transfers, Brett's expertise in portfolio management, managing concentrated stock positions, planning for the sale of a business, and helping young professionals accumulate wealth enables him to guide clients through their continuously changing financial decisions.