Retirement Planning: The 'Magic Numbers' Are Different for Everyone

financial plan retirement magic numberEveryone has a different opinion on exactly how much you should save for a stress-free retirement. Even the experts argue over how much you must set aside each year: With Americans being told so many drastically different ways to calculate how much to save, it's no wonder that so many have simply thrown up their hands decided not to think about it at all. That confusion leads to procrastination and planning paralysis. Only 58 percent of us are saving for retirement, and a startling 30 percent of workers say they have less than $1,000 saved for their golden years.

So if you're stuck -- drowning in a sea of advice that, instead of inspiring you to act, drives you to bury your head in the sand -- let us share an important secret with you...

There Is No 'Magic Number'

There, we've wiped the slate clean. And it's the truth, no disrespect meant for The Wall Street Journal or Fidelity Investments.

The number that will work for me will not work for you. And there are so many variables to adjust before and during retirement, it really doesn't make sense to look at just one hard-set number.

This is not to say that preparing for retirement isn't important -- because it is. But more important than calculating a "magic number" to base your planning and saving around is the act of thinking about and working through the inputs that matter to your retirement specifically.

So here are some questions to reflect on:

1. When do I want to retire? Perhaps you're a freelance writer who can't imagine a life without writing. Or you're a tax accountant who gets a thrill from looking at W-2s. Maybe full retirement isn't a goal of yours. So you may not need to save as much, since paychecks will continue to flow in to you, though perhaps smaller ones. On the other hand, if you would like to retire at 50 and travel the world with your spouse, you'll need to save strictly and live frugally.

2. How much do I spend and how will that change when I retire? Most of your planning should depend on how much you'll need to spend. If you have a mortgage, it may be gone by the time you stop working, so your housing expenses will drop. On the other hand, you'll be older, so medical expenses may rise. Think about where you spend money now and whether you'll need to continue this in retirement. The general rule is that your expenses in retirement will be between 70 percent and 85 percent of what they are pre-retirement, but yours will vary depending on your lifestyle.

3. What variables could change everything? How would an unexpected illness or the death of a spouse alter your plans? Could working for a few more years after your child graduates college (and that tuition bill is gone) add a significant sum to your savings? What would a sustained bear market do to your investments? What about a bull market? As mentioned earlier, nothing is set in stone, so seemingly minor changes could deplete -- or add quite a bit to -- your savings.

4. Am I being honest with myself? If you're 35 and still don't have roughly your annual income saved, let's face it -- you're behind. If you're older yet and still haven't crossed that milestone, you're even more behind. It's nothing to get depressed about. But it does mean you must work doubly hard to spend less and save more to catch up. And let's face it -- it's much easier to adjust your budget to free up a couple of extra thousand dollars in your 30s and 40s than when you hit 60 and are itching to quit.

Don't Forget, Some of This Will Be Supplemented

If you're lucky, you may still have a pension through your employer. So make sure to factor that into your retirement planning.

And for the rest of us, we also can expect Social Security to pick up some of the tab. Unfortunately, the younger you are, the more likely that your Social Secutiry check won't be quite as big as you hope. But for those nearing retirement, there are many ways to increase your payout -- sometimes by more than 70 percent! To continue reading more about this, simply click here for a free report on the topic.

This article was written by Motley Fool analyst Adam J. Wiederman.

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vlady1000

I plan to retire at in a few years at 58. I get no halth care, no pension, etc. I will have no mortage, no car payments, etc. With these issues and inflation coming back some time, I felt I would need an income of 100% of my current gross and a Net Worth of at least 50X what I currently spend per year.

January 23 2013 at 5:33 PM Report abuse -1 rate up rate down Reply
J Grace

I am retired. I used to think that if we just had the same revenue when my wife and I retired as before, we would be in good shape. NOT. You see, we now have grandkids and my wife thinks she needs to cloth them,... every week. You get the picture. Now, our clothing budget is about the same as our mortage used to be each month. So, the moral of this story is if you have a wife and grandkids, be sure to watch the budget, for clothes, and oh yeah, for magazine subscriptions and candy and girl scout cookies and all that kind of stuff your wife will spend money on to help the grandkids, for sure. Other than that, kick back, play a little golf, go fishing, walk, take a vacation when you can, if you can, and as my doctor says, WALK. Well, already said that, but my doctor says I do repeat things more often now that I'm retired. I simply told him that's my privilege and right as an old retired man. Now, have a good one.

January 23 2013 at 5:24 PM Report abuse rate up rate down Reply
westdairy2

The closer I've gotten to retirement, the more I've been thinking about this subject. And the more I think, the more confusing the gaggle of information becomes. One question I have about the "times salary" benchmark is, are they talking about gross or take-home? Also, I used to totally agree with the mortgage-free goal at retirement -- until I was able to refinance for 30 years at 3.625%. Now when our free-and-clear rental house sells, we'll have another pot of cash that inflation will eventually allow us to invest at a rate that is higher than the mortgage. I don't forsee any change in our lifestyle, but health care costs are the wild card that I can't decide how to intelligently factor into spending vs. Social Security + investment return projections. This is one of those subjects that, whenever I run into someone who's already headed down the retirement path and is willing to talk about their experience, I turn into a sponge for information and perspective.

January 23 2013 at 3:46 PM Report abuse rate up rate down Reply
westdairy2

The closer I've gotten to retirement, the more I've been thinking about this subject. And the more I think, the more confusing the gaggle of information becomes. One question I have about the "times salary" benchmark is, are they talking about gross or take-home? Also, I used to totally agree with the mortgage-free goal at retirement -- until I was able to get a 30-year fixed rate of 3.625%. Now when our free-and-clear rental house sells, we'll have another pot of cash that inflation will eventually allow us to invest at a rate that is higher than the mortgage. I don't forsee any change in our lifestyle, but health care costs are the wild card that I can't decide how to intelligently factor into spending vs. Social Security + investment return projections. This is one of those subjects that, whenever I run into someone who's already headed down the retirement path and is willing to talk about their experience, I turn into a sponge for information and perspective.

January 23 2013 at 3:45 PM Report abuse rate up rate down Reply
Richard

I have long invested in precious metals....guns and bullets and thanks to Obma and his merry tribe of liberal loons is it CERTAINLY STARTING TO PAY HUGE DIVIENDS!

January 23 2013 at 2:49 PM Report abuse -2 rate up rate down Reply
Burt

If you are married and your spouse is a big spender you may need more than you think! The magic number then becomes 20 times your last salary figure. Inflation will play a major role in retirement. It could easily hit 5% in the next few years and there would have to be major cuts made in your budget. What if gas goes back to $5.00 a gallon? no more travelling? better take up gardening then or volunteering close by. Going out to eat has become very expensive. A light dinner of burgers can be $35.00 not including drinks. Bring along your own wine or vodka and make your own drink when no one is looking. Make rain barrels to catch water for your plants, use the gas station toilet down the street and walk there. have garage sales, sell everything on ebay, shop only at goodwill, find out where food pantries are in your area, make reservations at a FEMA camp near you for vacations.

January 23 2013 at 10:56 AM Report abuse +1 rate up rate down Reply
1 reply to Burt's comment
crimeslawyer

The standard of living will shrink for most people ( except for government employees). Get used to it. The libs are determined to make us a banana republic. They are in love with the communist idea of everyone being equally miserable.

January 23 2013 at 12:04 PM Report abuse +2 rate up rate down Reply
1 reply to crimeslawyer's comment
luckycur

Get real, other than Federal Lawyers and Doctors, the remaining are underpaid in comparison to the their counterparts in the private world. I went over the $100,000 per year income level in 1982, my spouse the CFO of a VA Hospital system Statewide, still earns under $100,000 after 24 years of service. In addition, thanks to our politicians changing the Federal retirement plan in 1984, she pays into Social Security, Medicare, 401K, lacking the full pension plan of 50%/75% of final earnings that they kept for themselves.

January 23 2013 at 3:46 PM Report abuse -1 rate up rate down
pe12427

What most financial planners do not account for is what form your savings is in - mostly they want it to be in a format that involves their interaction and hence fees and commissions.
The best approach one can take to retirement is to own, free and clear, your chosen place of retirement. The second best item is to be completely debt free at the time of retirement. These two simple steps cost you nothing and bring the funds required for retirement down to daily living expenses, yearly taxes, insurance, and funds for any retirement pursuits you may have.
Taking the simple approach above saves numerous "advisor" fees plus leaves a nice inheritance, if the form owned goods, for your sibilings.
With no debts,and no major cash outlays, retirement planning becomes simple and social security plus a relitively small retirement based savings ( much less than the reccommended 8 times your working salary) easily covers everything.

January 23 2013 at 9:39 AM Report abuse +6 rate up rate down Reply
1 reply to pe12427's comment
Rich

I completely agree with everything that you said but the viability of that working does depend on where you live. I unfortunately live in Illinois where we are taxed to death. My house is paid for but unfortunatly my real estate taxes alone are higher than most mortgage payments in more affordable parts of the country. Social security with a small retirement savings definitely won't allow me to stay here near my children and grandchildren in retirement.

January 23 2013 at 9:01 PM Report abuse rate up rate down Reply