Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.
I’ve had variations of today’s question many times before. It’s about being on the cusp of retirement and wondering if you’ve saved enough to live the retirement life you imagined.
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 “The Only Retirement Guide You’ll Ever Need” and “20 Ways Retirees Can Bring in Extra Money in 2020.” 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.
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 Money Talks News, serving up the best in personal finance news and advice since 1991.
Today’s question comes from Steve:
“I am 67, and Carolyn is 63. If we both work till 70 (the plan), we will have combined Social Security incomes of over $6,000 per month. We’ll have no mortgage and between $800,000 to $1 million in savings. We are stressing about retirement and would like to relax a bit. Can we?”
OK, Steve, let’s discuss.
Steve says he and his wife plan on working until they’re 70. Combined, they’ll get more than $6,000 a month from Social Security, and they’ll have close to $1 million in savings. So let me ask you: Will they have enough?
Answer? There’s no way to know without knowing what they plan to spend.
If you’re approaching retirement, here are two simple steps to figure out if you’ll have enough.
Step 1: Figure out what you’ll have
Steve did a good job of guessing how much he’s going to have when he retires: about a million bucks. But here’s something he could also do: Figure out how much that could add to his income.
You can do this by dividing your total expected savings by your life expectancy. Example: Say, like Steve, you’re going to retire at 70 and expect to have a total of $1 million in savings. You estimate your joint life expectancy is 20 years. Divide $1 million by 20 years, and you get $50,000 a year.
Now, Steve has a very rough estimate of how much monthly money his savings will generate, providing he’s willing to spend down his capital. Add the couple’s Social Security of $6,000 a month, or $72,000 a year, and Steve and his wife can expect to bring in $122,000 a year.
Obviously, we hope Steve and his wife will be growing their savings during retirement, not simply spending their principal. This exercise is a quick, down-and-dirty computation.
Again, 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 income number to work with.
Step 2: Figure out how much you’ll need
All things being equal, you’re probably not going to need as much income in retirement as you’re spending now. On the other hand, depending on how you intend to spend your retirement years, you could be spending more than you are today.
Either way, retirement planning means confronting your future. Are you going to be sitting on the porch or staying in luxury hotels as you travel around the world?
If you have no idea or can’t imagine how much you’ll spend during your retirement years, use the amount you’re spending now.
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.
After going through these two steps, you’ll have at least some kind of idea whether you’ll have enough. Granted, this is an exceedingly simple look. You can — and should — drill down a lot more.
The sooner, the better
One last tip: When it comes to retirement planning, the sooner the better.
There’s no reason to feel like an idiot as retirement approaches and you don’t have enough. Plan early; you’ll have more 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.
In short, the sooner you start confronting your likely retirement reality, the better off you’re going to be.
Hope that answers your question, Steve.
Now, what about you? Got a question of your own to ask? Then, do what Steve did: Simply hit “reply” to any Money Talks News email newsletter and fire away. I can’t answer every question, but I do my best.
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I’m Stacy Johnson. See you here next time!
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The questions I’m likeliest to answer are those that come from our members. You can learn how to become one here. Also, questions should be of interest to 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.
I founded Money Talks News in 1991. I’m a CPA, and I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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