For some, retirement is far away, but it’s right around the corner for others. As lifespans increase, the need for more robust retirement accounts is more important than ever. No matter where you are in your retirement journey, it’s crucial to ask yourself: Am I financially prepared? Let’s dive in!
Step 1: Assess What You Have
Add up the value of all your retirement account balances, including your 401(k), IRA, pension funds, and personal investments.
Step 2: Define Your Needs
Envision your ideal retirement lifestyle—will you travel the world, golf daily, or volunteer for a cause? Each lifestyle has different costs. Research the average expenses for your desired retirement location, activities, healthcare, potential long-term care, and unforeseen costs. The total cost of your ideal retirement lifestyle is how much your investments need to produce to support you during retirement.
Step 3: Determine Your Investment Goal
The best method to assess your retirement needs is to meet with a retirement planning professional; however, a couple of tools can be used to estimate how much you need for retirement—the 5% rule and the 25x rule.
The 5% rule assumes that your investments will produce at least 5% annually. To estimate your investment goal using this method, divide your annual retirement costs by 5%—you should get a larger number representing your investment goal using this method. If you don’t think your investments will produce 5% annually, you can reduce the percentage to the number you feel more comfortable with.
The 25x rule is a simple way to estimate how much money you need to save for retirement. It states that you should aim to have 25 times your desired annual retirement income saved before you retire. To estimate your investment goal using this method, multiply your annual retirement costs by 25—the result will be your investment goal using this method.
Step 4: Take Action
By this point, I hope you’re smiling because you’re on track to retire well. If this is the case, keep saving and monitoring your progress. Consider seeking professional financial advice for personalized guidance.
If you are behind, don’t worry—you still have options!
