How Much Money Do You Need to Retire Happily?

You don’t want to run out of money before you run out of life. How much money do you need? Great question. Here are others you want to answer along the way to saving for retirement:

How long will I live? Probably the hardest question in all of life – you have to think about your mortality and foresee advances in medical science. A life insurance company might tell you that at 65 you can expect to live about 20 more years. If you’re in good health that number is higher.

When will I retire? If you plan to retire at 55, you need much more money than if you retire at 70. The longer you don’t work, the larger the nest egg you need.

If you hate what you do, you probably want to retire earlier. If you love what you do, retirement might not even be on your horizon. If you’re like most people, determining how much you like the work helps you figure out at what age you want to retire.

Will I work in retirement? If you stop working full time, do you stop working completely? Will you consult a few days a week? Start work in a different industry? Some originally plan merely changing jobs after retirement starts.

If you want to work part time when you retire, you obviously need to save less money. Let’s be clear about this, though: If you plan on working part time and you save nothing today you’ll still run out of money fast in retirement.

Rather than an excuse to dodge building a nest egg, working part time counts as only a way to fill your retirement time and reduce – not eliminate – the amount of money you must save today.

How much am I saving? If you save 10 percent or more of your salary and you’re younger than 40, you stand a reasonable chance of having enough money for retirement (a reasonable chance, not a guarantee).

Remember too that many events can derail your retirement plans over some three decades. Review your plans regularly.

(A standard formula – increasingly challenged – holds that if you withdraw roughly 4 percent of your savings annually for 30 years’ retirement, you stand a good chance of not outliving your money. A lot depends on the details.)

How am I investing? Conventional wisdom holds that the younger you are, the more stocks your portfolio needs. As you age, that same wisdom says you need to lighten your equity exposure and increase your savings in bonds and other fixed-income investments.

Think about your investments as buckets on a ladder. You change investments between the buckets depending on what happens to your investment portfolio. In good market years, you take more money from equities and in bad years from your cash bucket. This system often helps you maintain more control over and safety in your portfolio.

Your goal is enough money for your golden years. These questions can’t give you all the answers, of course, but they do help you think more intelligently about what’s possible – and affordable – in your retirement.

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Written by Josh Patrick, a founding principal of Stage 2 Planning Partners in South Burlington, Vt. He contributes to the NY Times You’re the Boss blog and works with owners of privately held businesses helping them create business and personal value. You can learn more about his Objective Review process at his website.

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