How Much Do You Need?

A frequent question I often address is related to how much one needs saved in order retire comfortably. “You need at least a million dollars saved” or “You will need 10 to 12 times your income saved to retire” are regularly expressed rules-of-thumb commonly promoted on financial blogs, AM radio shows, and public television specials. The best answer to this question is “it depends!”.

While it is important to have a goal number to work towards, the amount one needs to saved in a retirement nest egg varies as there is no one-size-fits-all due to varying goals and expectations in retirement. For example, there would be a difference in savings and investments needed for a couple that has aspirations to winter in the south while maintaining a property in Wisconsin versus a single person that is “happy as a clam” sitting on an upside-down five gallon bucket ice fishing on Otter Lake all winter.

Consider that the underlying purchasing power of a dollar varies depending on geographical location. You will likely need less saved for retirement if your plan is to retire in the mid-west versus the east or west coast where a dollar doesn’t buy you as much. For example, a retiree living in Eau Claire Wisconsin with yearly income needs of $50,000 would need $78,059 if living in Los Angeles California to cover the same expenses (housing, transportation, food, healthcare, etc)1.

How do other sources of income factor into the equation? Often-times pension income, social security retirement benefits, part-time employment income, and passive income (e.g. rental income) are part of one’s overall retirement income strategy. The extent and magnitude of those income sources, in comparison to the total income required to retire comfortably, will impact the overall amount one needs to save for retirement.

Don’t forget inflation. Inflation is the general tendency of prices to increase over time. According to the Federal Reserve Bank of Minneapolis, you would need $17,250 today to purchase what did cost $10,000 twenty-five years ago2. Consider what sources of income tend to keep pace with inflation and which sources of income remain the same over time. Stagnant sources of income become less valuable over time due to inflation.

Life expectancy, health care costs, and long-term care costs should also be considered in determining retirement savings rates.

While there are many factors that should be considered in developing a retirement savings plan, recognize that each person’s situation is different. A CERTIFIED FINANCIAL PLANNER™ or other qualified financial professional will be able to analyze your current situation and assess your progress towards your unique financial goals, and if necessary, recommend any changes to your saving plan so there is a higher probability of a financially fruitful and rewarding retirement.

Adam Smit is a CERTIFIED FINANCIAL PLANNER™ with Adam Smit Investment Management LLC and a registered principal of LPL Financial. This article is for general information only and not intended to provide specific advice or recommendations for any individual. Adam Smit Investment management LLC and LPL Financial do not provide tax or legal advice. Securities offered through LPL Financial. Member FINRA/SIPC.

1 – “Cost of Living Calculator: NerdWallet – City and Salary Comparison Tool.” Nerdwallent 2020, www.nerdwallet. com/cost-of-living-calculator 2 – “What’s a dollar worth?” Federal Reserve Bank of Minneapolis 2020, www.minneapolisfed.org/about-us/monetary- policy/inflation-calculator