2-Minute Money Manager: How Do I Know I’ll Have Enough to Retire?

Couple in Car
Photo by EpicStockMedia / Shutterstock.com

Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about retirement; specifically, how to know when you’ll have enough savings to ensure a comfortable, happy retirement.

This is an interesting question for at least two reasons. First, it’s one nearly all of us will face. Second, unless you’ve got ridiculous amounts of money, there’s never any way to know for sure.

Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “9 Tips to Ensure You’ll Have Enough to Retire” and “7 Mistakes Guaranteed to Ruin Your Retirement.” You can also go to the search at the top of this page, put in the word “retirement” and find plenty of information on just about everything relating to this topic.

If you want to explore the best strategies for maximizing Social Security, click here. And if you need anything from a better credit card to help with debt, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Our question today comes from Jane:

“I’m confused. I plan on retiring in about five years, but have absolutely no idea whether I’ll have enough. Is there any way to be sure?”

This is a question we’ll all face sooner or later. For me, it’s sooner: I’m already 62.

Let’s look at three things.

Thing No. 1: Figure out what you have

You know what you have in the bank, and you know what you have in your retirement plans. Add them together. Are you going to continue contributing the same amount to your savings every month between now and the day you retire? If so, add that in. Now you’ve got the total you’ll have to work with when that day comes.

Once you know your total savings, divide that number by your life expectancy. Example: Say you’re going to retire at 65 and based on the math above, you expect to have a total of $200,000 in savings. Your life expectancy at 65 is 20 years. Divide $200,000 by 20 years and there you have it: $10,000 a year.

Now you’ve got a very rough estimate of how much monthly money your savings will generate, providing you are willing to spend down your capital. Add to that Social Security, pensions and any other income you’ll have, and you’ll have an idea of how much you’ll be living on.

Keep in mind that you could add to your savings. For example, maybe you’re planning to sell your house and downsize. Or, maybe you’ll be inheriting. Or, maybe you’ll work part-time in retirement. Think it through. But at least you’ve got a quick back-of-the-envelope way to estimate what you’ll have.

Some will say, “Wait a minute! Aren’t my savings going to be earning interest while I’m retired?” Sure, but you’ve also got inflation to take into account. So, for a quick, down-and-dirty computation, let inflation and interest cancel each other out. Simply take what you’ll have in savings, divide it by your life expectancy, add what you’ll get from other sources, and you’ve got a quick number to work with.

Thing No. 2: Figure how much you need

If you don’t know how much you’re spending now, this is a great time to figure it out. Use some sort of budgeting app, or simply write down everything you spend until you have a handle on it.

All things being equal, you’re not going to need as much income in retirement as you’re spending now. When you’re working, you’re paying payroll taxes, commuting, buying clothes you probably won’t need in retirement — things like that. On the other hand, depending on how you intend to spend your retirement years, you could be spending more than you are now. Either way, confront your future.

After going through these two exercises, you’ll have an idea of how much your income and expenses will be in retirement. Of course, this was an exceedingly simple look. You can — and should — drill down a little more. There are calculators online that can help, but at least now you’ve got a starting point.

Thing No. 3: The sooner, the better

When approaching retirement, many people bury their heads in the sand. They’re afraid they’re not going to have enough and don’t want to confront it. So, they don’t do anything.

Dumb idea. Do something. Use online calculators, use the simple computation I just gave you — but whatever you do, do something.

Don’t feel like an idiot as retirement approaches and you don’t have enough. Now is the time to plan, because now you have options. Maybe you can put away more. Maybe you can get a side job and make more money, or maybe you can think about where you might be able to live for less when you retire.

The sooner you start confronting your retirement reality, the better off you’re going to be.

Make sense, Jane? I hope so.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds, and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Surprising Advantages of Downsizing as a Retiree
7 Surprising Advantages of Downsizing as a Retiree

Downsizing your home offers many benefits, including some you may not have anticipated.

15 Great Amazon Finds You Can Buy for Less Than $5
15 Great Amazon Finds You Can Buy for Less Than $5

These products offer big value at a small price.

How to Buy a Refrigerator, Step by Step
How to Buy a Refrigerator, Step by Step

Here’s how I got the perfect appliance at the perfect price.

5 Countries Where You Can Retire on $2,000 a Month or Less
5 Countries Where You Can Retire on $2,000 a Month or Less

These tips on retiring overseas come from someone who’s been helping American expats for decades.

How to Stop Living Paycheck to Paycheck in 8 Steps
How to Stop Living Paycheck to Paycheck in 8 Steps

Does it feel like your paycheck is gone the moment you get it? You can break that vicious cycle.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

This Is America’s New Favorite Grocery Store
This Is America’s New Favorite Grocery Store

Consumers say a familiar name has become their go-to source of grocery items.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

Does Wearing 2 Masks Protect You Better From COVID-19?
Does Wearing 2 Masks Protect You Better From COVID-19?

A growing number of people are wearing two masks instead of just one. Should you join them?

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

10 Cars You Are Most Likely to Keep for 15 Years
10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

Prepare to Pay More for These 31 Drugs in 2021
Prepare to Pay More for These 31 Drugs in 2021

More than 700 prescription medications have seen price hikes so far this year. Here’s a look at the worst.

The 10 Golden Rules of Becoming a Millionaire
The 10 Golden Rules of Becoming a Millionaire

I’m a millionaire several times over. I got here the same way you can — by following these simple steps.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.