Can you afford retirement?

You don't always need millions to afford retirement. Ask yourself these six questions.

Melanie Stetson Freeman/The Christian Science Monitor/File
Members of The Villagers, a men's chorus at John Knox Village in Pompano Beach, Fla., practice weekly. Can you afford retirement? It doesn't always takes millions of dollars.

Have you ever noticed how many sites and magazines talk about how you’re going to need outrageous amounts of money to retire in the lifestyle you want?

I mean, they make retirement savings such a lofty ideal that it’s often less than motivating!

Wouldn’t you agree? Saving millions of dollars when some of us are barely getting by seems like a goal that will never be reached.

So what do we make of all this talk that you need at least $3,000,000 to retire? Can you really afford retirement if that’s the case?

Let’s take a look:

Why Do Some Suggest You Need Millions to Retire?

Understanding where some of these large numbers come from will help put this in perspective for us. Have you heard of something called Withdrawal Rates?

Basically, a withdrawal rate simply identifies the percentage at which you draw from your retirement assets. For example, if you have $300,000 in an IRA and you are pulling out $30,000 for income each year – what withdrawal rate would that be? Yes! 10%.

Now, here’s the deal – consensus says that a “safe” withdrawal rate, which means how much you can reasonably withdraw without running out of money, is 4%!

So if you have a $300,000 portfolio and you go with a “safe” withdrawal rate, then you could only pull out $12,000 per year or $1,000 per month for retirement.

Let’s say you’re making $80,000 per year pre-tax and you want to maintain that income in retirement as well as keep within your “safe” withdrawal rate you would need to have $2,000,000 saved in order to do that!

How Much Do You Really Need to Retire?

The magical question right!? How much money do you need to retire? Unfortunately, there isn’t just one answer that satisfies every single situation.

Your situation is probably different than your neighbors or your co-workers, and the variables are so great that it’s tough to just come out and say, “You need $3,000,000 to retire!”. But, that’s what sells magazines and gets people reading blog posts.

So, what is the right answer then? Well, the “right” answer is “it depends”, but let’s delve into that a little further.

Here are some good questions to ask to help get us closer to the answer:

  • Will you have any liabilities in retirement?
  • How far away is your goal?
  • Will you have a pension or other sources of income in retirement?
  • Do you plan to downsize or upsize your home?
  • Do you plan to travel extensively?
  • What sort of things do you want to do in retirement?
  • Maybe you’ll have paid off your mortgage and all other debts and really just need enough to pay your real estate taxes, utilities and normal monthly expenditures like food and clothing.

    Perhaps you want to travel the world and maintain winter and summer homes. The point I’m trying to make is that the amount of income you need in retirement depends on what you want to do.

    Figure out how much it’s going to cost you to live and work your way backwards. Sure it’d be nice to live off your pre-retirement income, but you may not need to! And that is perfectly OK.

    In fact, it’s good to simplify your lifestyles and look for opportunities to give to others instead of spending lavishly on yourself!

    Retirement Success?

    Understanding what your goals are, how much those goals will cost, how to create additional revenue streams in retirement and living simply will help push you to retirement success.

    But to me, in its simplest terms – retirement success is about people, passion and purpose!

    Don’t forget that retirement is a great time to build relationships with family, friends and neighbors. It’s also a great time to pursue your passions, your hobbies and your joys! And most importantly, it’s a great time to live life on purpose! God has put you here for a reason, so figure out what God has in store for you and live for Him.

    Also remember that right now is a great time to pursue those things as well!

    You may not save $3,000,000, but do the things you need to do to get on track financially anyway – like working hard at becoming debt free, socking money away, and giving generously, and you’ll be surprised – you might just be able to afford retirement after all.

    What Are Your Thoughts?

    Do you think you’ll be able to afford retirement?

    Jason writes at Redeeming Riches where he helps others Restore Their Money and Renew Their Minds.

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