How Much Money is Enough Money?

How Much Money is Enough Money?

Far and away, the most common question financial planners get from people in their 40s and 50s is “how much money do I need to retire?” I have to be honest with you: I hate this question. I hate it because people always get frustrated or mad at me when I reply, “I don’t know.” It’s not that I can’t eventually give you a concrete answer, it’s because I don’t know your life and the intimate details of it, and throwing out a random number to appease you would be irresponsible, and ultimately inaccurate.

How much money is enough money? It’s a valid and important question which, unfortunately, doesn’t have a simple answer. Every person and family’s situation is different and this affects the total amount you’ll need to retire.

Here are just a few of the things financial planners would need to know before calculating how much money you need to retire:

  • Your relationship status (married, divorced, single, widowed, dating and thinking about marriage, dating and thinking about breaking up, single and on Tinder, single and not on Tinder, single and looking on Farmers Only, in a polyamorous relationship, in a monogamous relationship with yourself. Okay, so maybe not all of these are pertinent, but I am very nosy).
  • How many children you have and their ages
  • Your tax bracket
  • Your health and life expectancy
  • Your income
  • Your spouses income
  • Your monthly expenses
  • What you plan to do in retirement (travel, downsize, upgrade, move, join a swingers club, etc.)
  • Will you work in retirement or have other sources of income
  • What do you currently have for investments
  • How are your investments allocated
  • What is your risk tolerance and risk capacity
  • What do you currently have saved in retirement accounts
  • How much cash do you have saved
  • Do you want to take care of spouse/children/grandchildren financially
  • What do you expect to receive from Social Security
  • When will you begin taking Social Security
  • Your assets
  • Your liabilities/debt
  • What will you do for insurance/long-term care in retirement
  • Do you have life insurance

The list can go on and into much deeper detail. So when a financial planner answers, “well, it really all depends” they aren’t kidding. No one size fits all. My retirement compared to Oprah’s will most likely look a little different. Your retirement compared to even your closest family and friends may also vary tremendously.

Whatever life stage you are in right now, you can begin to calculate how much money you’ll need in retirement by answering the above questions and setting long-term goals. The old rule of thumb that you’ll need 70-80% of your pre-retirement income is too simplistic.

It can be really difficult to picture how you want to spend your retirement years, but try to be as realistic as possible. If traveling, or living half the year on a beach, is something you’d like to achieve, then research what those costs are going to look like. Also, remember the cost of living is likely to increase and inflation historically is around three percent, so your dollar now will be worth less in the future. Think about how your expenses will decrease and in what areas they’ll increase as well.

For younger people, retirement not only seems like a lifetime away, many Millennials are considering alternatives to the old “work 40 years to retire at 65” lifestyle. Ideas like mini-retirements and working from remote locations are becoming more mainstream as technology evolves and nonconformity becomes the norm. Still, Millennials shouldn’t underestimate how much they’ll need later in life. Saving and investing is important no matter what your life plan entails.

I’ve said it once and I’ll say it a million times: The best way to figure out what you’ll need for the future is to take a look at what you’ve got now. From there, start to set financial goals for your future. Write it all down. Develop a plan to get there. Ask for help if you need it. It’s all about having a vision for your life that you’re committed to achieving. Maui beach house next door to Oprah, here I come.

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