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How much do I need to retire?

Profile picture of Kate Williams, Ph.D.
by Kate Williams, Ph.D. ConsumerAffairs Research Team
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When determining how much you need to retire, some experts will give you a straight number to shoot for, generally around $1 million. Other experts say that focusing on one number is bad advice that can destroy your finances by distracting you from the larger picture of deciding how much money you need to retire based on how you will be spending your retirement. This guide will break down the advice for you so you can figure out the best way to meet your retirement goal.

Methodology: To get a well-rounded view of current retirement advice, we consulted five experts with a wide range of experience and viewpoints to give you a breakdown of the different opinions and options available to you, no matter where you are in your retirement planning. We also consulted with over 20 publications.

When to start saving for retirement

Ideally, you will begin planning for retirement from the moment you begin working: “There’s no substitute for getting an early start on saving,” says author and financial editor Walter Updegrave. A lot of financial advice recommends budgeting as the beginning point of retirement savings, however, one problem with budgeting is that you run the risk of only saving what’s left over after you have spent the money allocated in your budget.

Instead of budgeting, young professionals should prioritize savings in a way that makes sense to them: “The first thing you should do is save,” Updegrave says. Whether you save 10 percent, 15 percent or another amount that makes sense to you, put your savings in a 401(k) or mutual fund. “Take it right off the top,” says Updegrave, so you can force yourself to live on less than the amount of income you actually make.

While this is sound advice for people at any age and career level, starting your career with this mindset will make it easy to adjust to a certain standard of living. It will be significantly more difficult to try this later in your career when you effectively give yourself a pay cut by putting more cash into savings every month.

Updegrave advises people to think of retirement as “a living bill you have in the future,” one for which you are simply putting money aside to pay later. This can be a great way for you to make saving for retirement a priority rather than an afterthought. “The biggest thing is to start,” adds Sophia Bera, author of the e-book What You Should Have Learned About Money, but Never Did: A Gen Y Guide to Empowered Finance and founder of Gen Y Planning, which is an investment firm dedicated to serving millennials. Once you get started by opening a Roth IRA or 401(k) and setting up your monthly contributions, your money will start adding up.

looking over financial paperwork

Saving vs. investing money for retirement

A successful retirement plan will include both savings and investments. Here’s a breakdown of why each of these retirement vehicles matters and how you should use them as you advance through your career years:

  • Retirement savings accounts
    Savings are lower-risk than investments and can be thought of as cash equivalent vehicles, including money market accounts, CDs and savings accounts. While you want to have some money set aside in savings, these are not avenues that will, in the long run, make you a lot of money. That’s why it’s important to combine savings with investments to build your nest egg and have enough cash in the bank when you’re finally ready to retire.
  • Retirement investments
    Investments are higher risk than savings vehicles, although the amount of risk they pose depends on the type of investment. Generally, people will make riskier investments early in their careers, then move their money to lower-risk investments as their career advances and they start thinking more and more about retirement.

    Stocks are the most common and popular form of investments, and in general, they should make up part of your retirement portfolio. Learn how to buy stocks to maximize the chances of investing wisely, and keep in mind that investments are riskier than savings for the potential for a higher return – a high return isn’t guaranteed, which is why you do not want to put all of your money in high-risk investments.

retirement savings jar

How to catch up on retirement savings

There are a lot of reasons people put off saving for retirement. Going to graduate school, working minimum wage jobs and/or jobs without a company 401(k) option, taking time off from the workforce to take care of kids or aging parents, or just simply not thinking about it are all common reasons people neglect to save for retirement. If you fall into this category, the bad news is that you can’t recoup all the money you lost by not saving earlier in your life. The good news, though, is that you still have options. Here are three things to start doing immediately if you are worried about having enough for retirement:

  1. Start saving now
    The key is to start saving as soon as you think of it. Putting it off for another year or longer isn’t going to make things better. You can start small and gradually increase the amount of money you put away as you adjust to your new monthly income level. Keep an eye on your investment. You’ll be surprised at how quickly a small deposit every month adds up.
  2. Save more aggressively
    Starting small is better than not starting at all, but it’s best to start saving aggressively, especially if you have put off investing in retirement. If your company offers a 401(k) match, make sure you are putting away at least as much money as you can to get the match. That match is literally free money, which we can all agree is pretty rare.
  3. Start automatically saving
    Start treating bonuses, tax refunds and any other “found” money as part of your retirement plan by automatically depositing it into your Roth IRA or 401(k) account. You won’t even miss it, but you’ll thank yourself when it’s finally time for you to retire.
older woman sitting at a desk working

How to retire on little money

If you are ready to retire and don’t have enough retirement savings, “there are always things you can do to improve your situation,” explains Updegrave. Some things to consider if you are near or at retirement age but don’t have the nest egg you need for a full retirement include:

  • Downsizing to a smaller house, condo or apartment
  • Taking in a renter
  • Moving to a part of the country with a lower cost of living
  • Considering a reverse mortgage on your home

The retirement experts we spoke with seem to all agree on one thing: delaying retirement for one or more years might be all it takes to keep yourself comfortable enough to retire for good. “Delaying retirement can have a really big impact,” says Updegrave. Wes Moss, author, and host of the popular radio show “Money Matters,” encourages people to think of taking a “junior retirement” before fully retiring, meaning you would work part-time doing something you enjoy. Junior retirement can be a great intermediate step to bridge the gap between full-time employment and full-time retirement.

Many people are choosing to take a step back from their working roles without fully retiring, and we should expect to see this trend continuing with Gen X and Gen Y. Bera predicts that the current trend of retirees turning to what she calls an “encore career” when they reach retirement age will continue with future generations. Millennials especially seem to be thinking about their future when they choose to work in a company that rewards them with opportunities to learn new skills and move into different positions within the same company. Knowing they aren’t going to be able to just work for 30 years and retire, millennials are more invested in finding companies that allow them to grow and have the potential to be fulfilling for 50 or more years.

However, just because the average retirement age for millennials is predicted to be 73 as opposed to today’s retirement age of 65 doesn’t mean millennials should plan to work until they are in their mid-seventies. “Don’t put yourself in the position where you have no choice,” warns Updegrave. Start saving and investing now so that you have options in the future.

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Retirement mistakes to avoid

There’s no one way to build a retirement plan, but there definitely are things you should avoid in order to meet your retirement goals. Avoid these common mistakes as you get closer to retirement:

  • Saving big projects for your newfound free time
    It’s very common for people to put off renovations for years, decades even until they are retired, focusing largely of the time they will have to put up with a renovation instead of thinking about the financial burden of such a large product. Try to tackle renovations and other big ticket items while you’re still working so you know you have the income stream to handle the financial burden.
  • Not planning for market downturns
    Instead of preparing for ups and downs in the market, a lot of people make the mistake of thinking the market’s going to stay steady. There are going to be great years and there are going to be years when the market dips. The key is to transition from investing to saving as you move closer to retirement so dips in the market don’t disrupt your plans when you are ready to retire.
  • Thinking they have time to save later
    Not saving enough and not getting started enough are two big mistakes people make when planning for retirement. Even starting small when you are in your twenties will pay off compared with waiting until you have a bigger paycheck, thanks to compound interest. Aim to save 15 percent of your income if you start saving in your twenties and more if you start saving later.
  • Making plans based on things that are out of your control
    A common mistake among retirement savers and investors is they plan their retirement based on factors out of their control, like the market staying steady or getting a massive inheritance to cover a significant portion of their retirement expenses. Take full ownership of your retirement planning so you can be prepared for things that are out of your control.
financial advisor sitting with older couple

How retirement planning professionals can help

Whether or not to seek professional financial advising for your retirement plans is up to you. The experts agree that it is entirely possible for people to successfully manage their retirement portfolios. If you’re not a numbers person and/or the thought of having complete and total control over something as significant as your retirement savings makes you anxious, it’s probably a good idea to find a financial adviser who can handle all the dirty work for you.

How to find the right financial adviser for you

The first step to finding the right financial adviser for you is understanding how they make money. After all, they aren’t doing you a favor by helping you with your finances. They’re doing their job, and in order to do their job well, they need to be making money from you somehow.

There are three main ways financial planners get paid:

  1. Commission-based financial planners
    A commision-based financial planner is the most common. This type of planning fee means that your financial planner only makes money when you buy a particular product through them. Your commision-based financial planner might genuinely have your best interest at heart, but it can be difficult to tell when there is such a high potential for a conflict of interest.
  2. Fee-only financial planners
    Most retirement and financial experts will recommend that you hire a fee-only financial planner. This payment structure means you pay a flat rate, so your financial planner gets paid no matter what products you do or do not buy. This structure means they are more likely to maintain a more objective outlook of your portfolio. You might pay your fee as a percentage of the total value of your account, as an hourly rate or as a flat fee.

    If you’re going to be working with your financial planner long-term, then finding one who gets paid a percentage of your account’s value is a good idea because, ideally, your planner will have incentive to help you grow your portfolio since she will get a cut of your success. If you’re just starting out with a financial planner and/or are more generally looking for advice on a particular issue, such as your retirement portfolio, starting out with an hourly rate or flat fee financial planner might be your best option.

  3. Fee-based financial planners
    Not to be confused with fee-only, a fee-based financial planner will be compensated both by fees that you pay directly and by commissions they receive through sales and/or recommendations of certain products.
older couple hiking

What to do after retirement

Today’s retirement is vastly different than what we’re used to thinking of when we picture retirement. Retirees today are living longer and are using their retirement years to fulfill their dreams and passions through volunteer work, non-profit work and part-time work. Some retirees are taking part in fun and exciting ventures including travel blogging and working as park rangers for half of the year, while others are applying their corporate skills to non-profit work. Still others are taking advantage of the rise in flexible part-time work available such as freelance writing and even driving with a ride-sharing company.

All of the above second-act careers give retirees a way to make some extra income while doing something they enjoy. To reap the reward of a fulfilling second act, though, it’s important to have enough money saved up in the first place to take a significant pay cut during your semi-retirement. The more money you have saved, the more flexibility you have to work for fun instead of a much-needed paycheck.

Reaching retirement age doesn’t mean you need to completely quit your full-time job and switch to a new field. Many retirees are able to work part-time for a specific, agreed upon amount of time. During their period of semi-retirement, they serve as a mentor for their successor, which can be as much a benefit for the company as it is for the semi-retired employee. Many companies don’t offer this type of semi-retirement as an official, organized program but will be willing to work with their employees to develop one. Talk to your employer if this is something that might work for you and benefit the company at the same time.

One thing that is important to recognize is that you might have limited options if you did not save enough for retirement, particularly if you do not have highly marketable skills. To that end, it’s time to double down on how much you save. Think outside the box when it comes to finding ways to make, and save, money for retirement.

Bottom line

There’s no denying that retirement has changed drastically over a generation, and it will continue to do so for future generations. The one thing that hasn’t changed is the need to plan ahead so you can retire when you’re ready without suffering a major financial setback. Start saving and investing in your retirement now if you haven’t already, and start contributing more money into your retirement account(s) if you are worried you won’t have enough.

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Profile picture of Kate Williams, Ph.D.
by Kate Williams, Ph.D. ConsumerAffairs Research Team

As a member of the ConsumerAffairs Research Team, Kate Williams, Ph.D. believes everyone deserves easy access to accurate and comprehensive information on products and businesses before they make a purchase. She spends countless hours researching companies and industries before writing buyers guides to make sure consumers have all the information they need to make smart, informed buying decisions.