Whether you’re planning ahead or approaching retirement soon, you likely have one major question: Do I have enough to retire?
After all, you want to be prepared to live comfortably, enjoy your hobbies, support your family, and achieve goals like traveling or another project. That’s why it’s vital to ask yourself:
- Where will my income come from?
- Will it last through my retirement?
- What does retirement look like to me?
- Do I have a handle on my baseline living expenses?
- Can I withstand an unexpected expense?
Let’s consider some of these essential questions and factors as you build your wealth for your future.
Where Will My Income Come From?
First, assess where your income will come from both before and in retirement. While you’re employed, this could include your:
- Wages
- Bonuses
- Side hustles
You’ll need to determine how much to put aside for retirement annually, taking into consideration other factors such as how much you intend to invest in stocks over your lifetime and at what age you plan to retire.
In retirement, your income will likely come from:
- Social Security
- Retirement plans (e.g., 401(k), pension, or IRA)
- Other investments and savings
And we can’t say it enough—it’s never too early to start saving for retirement! Take advantage of your company’s 401(k) plan. Many employers offer matching contributions to boost your retirement benefit.
If you’re self-employed or wish to consider other options, there are various types of IRAs tailored for different needs and goals.
Will My Savings Last in Retirement?
There are many strategies to consider when determining how much you’ll need in retirement. One of the most well-known is the 4% rule. To follow this strategy, you’ll need to:
- Take 4% of your total investments when you retire
- Withdraw this amount each year, adjusted for inflation
Based on past market returns, this retirement should last 30 years. For example, to earn an annual retirement income of $80,000, you’ll need about $2 million in investments and savings.
Also, keep the retirement spending smile in mind. This phenomenon refers to research showing that retirees tend to spend more money early as they enjoy retirement, spend less as they age and slow down, and spend more again later in retirement due to increased medical expenses. In addition to building generational wealth and saving for leisure, you’ll want a cushion for the unexpected.
What Does Retirement Look Like to You?
That said, everyone has a different vision for their retirement, so you’ll need to decide how you want to spend yours to calculate how much you’ll need to live comfortably. Consider:
- Leisure: Do you have travel plans, multiple homes (which require a larger nest egg at retirement), or other “fun” spending in mind?
- Generational Wealth: Do you want to leave a large legacy for your family or another cause?
- Medical & Essentials: Build a cushion for unexpected medical costs, home repairs, end-of-life care, and market downturns.
Again, these unexpected costs can reduce your ability to support yourself in retirement if you don’t have sufficient savings. To get started:
- Evaluate your current expenses.
- List your retirement goals and their costs.
- Determine if you can cover them.
It’s simple but not necessarily easy—after all, you can’t be sure what the future holds! If you’re ready to plan your retirement and unsure if it’s a possibility, speak to a Carlson Advisor today. We want to help you create a plan today—one you can revisit each year before retirement.
Carlson Investments does not provide tax, legal, or accounting advice. This content has been written for informational purposes only. Always consult your individual tax, legal, or financial professionals for advice tailored to your situation
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