Your retirement nest egg may vary depending on your retirement spending and the kind of lifestyle you want to live. You need a clear strategy about what your golden years will look like for you.

Retirement Living Standards

According to the Pension and Living Standards Association (PLSA), there are three categories of retirement living standards: minimum, moderate, and comfortable. The minimum living standard is designed to sustain basic needs with some leftovers for recreation. 

The reasonable living standards give more flexibility and financial security. The comfortable living standards have more financial independence, and luxuries.

You can downsize your expenses when you retire, especially if you no longer pay for your fuel for work travels or pay for your pension contribution, so much more if you move to a place where the cost of living is lower than where you are now. 

You may need to increase your income if you want to travel to different cities and countries, purchase material possessions, and have a comfortable lifestyle. If you have to determine what you want to experience in your retirement years, you must set retirement goals and think of the best ways to achieve them.

Sad Reality: $1 Million is not enough

If you start saving $1000 a month at age 20, it will grow to $1.6 million when you retire in 47 years. For people holding at this age, the monthly payments add up to $560,000, the early combined with the estimated 4% over the years means their investment is nearly $1.1 million. 

The average American household spends at least $5,000 per month. Therefore, a million dollars would last you less than 17 years. When considering your purchasing power decreases even further over time. 

However, many Americans think that saving a million dollars for retirement funds is enough to quit the job for early retirement. Your savings can help you survive for quite some time, but it will not be enough if you still have several more years to live. 

With the help of advanced health technologies, we can live longer, and the life expectancy has significantly increased by more than six years, according to the World Health Organization (WHO).

It’s good news that we are living longer, but financially wise, we have to save more for the future retirement years to pay utility, food, recreation, medical, and healthcare expenses.

The average retirement age in the United States is 62, while the expected retirement age of current workers is 64. You have to start saving and investing as early as possible. To retire comfortably, you need a more excellent retirement nest egg. 

You have to consider that the cost of living in the future will not be the same as today, especially the medical expenses to be taken care of as you get older. Don’t forget the wealth to pass to your children and grandchildren. These are the things you have to consider for a comfortable retirement.

Related: Is 1.5 Million Enough to Retire?

Have Sufficient Income 

One of the best ways to sustain your expenses and meet your needs is to create an investment portfolio that helps you make that cash flow. Your investment decisions can help increase your earning potential. Preparing for retirement is the money in your savings account, but the cash flow can support your goals. 

When considering retirement, you must focus on your income and the sources. Choose the best strategy that could give you additional income. It could be from capital gains, earned income, profit income, rental income, and dividend income. 

Social Security Payments

You can begin receiving Social Security retirement benefits as early as age 62. However, you will receive higher monthly social security benefits if you delay taking your benefits after reaching your full retirement age, which is currently 66 or 67. 

You have to make regular payments for your Social Security to enjoy your Social Security income for your retirement expenses. 

The Social Security Administration offers monthly benefit checks to many kinds of recipients. As of March 2022, the average worker receives $1,536.94 but that amount can differ depending on the type of recipient.

Save for Retirement

A recent study shows that many Americans’ retirement income is expected to fall short of their expenses after they stop working. It is because of the continuing medical costs and an increasing inflation rate that affects the value of their money. 

A general rule of thumb is to have one times your annual income saved by 30, three times by 40, and so on. 

To maintain a similar lifestyle, most financial experts suggest replacing about 80 percent of your annual pre-retirement income in retirement. 

In other words, if you make $50,000 a year now, you should plan on having at least $40,000 a year when you retire. Don’t forget to consider the inflation in your saving goals. 

Inflation rates have accelerated to 7.5% (as of January 2022), the highest since 1982. The sunny-side-up will cost 12.5% more than it did a year ago, and well, you might want to think twice before increasing the temperature for a cozy winter night when you have to pay 6.3% more this year. 

The Consumer Price Index (CPI), might not reflect your lifestyle.  If you bought a car, an apartment, or a house last year, the actual inflation is significantly more and is not reflected in the CPI. 

You need to grow your savings at a bare minimum of 7.5% to retain their value and gain at least 15% annually to double your money every five years regardless of the fees, inflation, and taxes. 

Invest in the Right Asset

Investing your own money is a good idea because you get to earn returns. But with regular savings accounts, you can’t make much of a difference. 

Robert Kiyosaki says it’s not how much money you make but how much money you keep, how hard it works for you, and how many generations you keep it for. You must know how to manage your savings and make them grow to get your financial freedom number.

Passive investing has become the dream of most wealthy people and those not yet in that category. Going this route moves you closer to financial freedom and allows you to achieve a work-life balance earlier.

$100,000 invested in a disciplined manner for 15.5 years could make you a millionaire by doing nothing and simply staying invested in the right asset. Starting early, setting aside a specific portion of your income, and passively investing each year could make you a multimillionaire in a few years. 

Business magnate Andrew Carnegie said that 90% of millionaires got their wealth from investing in real estate. The investment returns are high as long as you are consistent and disciplined. Other investment vehicles such as mutual funds, bonds, securities, stock markets, and commodities are good diversifiers for financial investments.

Related: Multifamily Real Estate Investments: Easy Guide to New Investors

To learn more about real estate passive investing, visit Wellthy Capital and listen to insightful podcast episodes about positive mindset and wealth building on Apple, Stitcher, and Spotify.

Use Individual Retirement Arrangements (IRAs)

When long-term goals require assets to be set aside, experts recommend that investors use IRAs.

Roth IRA

A Roth IRA can be a significant savings vehicle for retirement. You can contribute $6,000 to your Roth if you’re under age 50 and $7,000 if you’re over 50, as long as your income doesn’t exceed $140,000 if you file single or $208,000 if filing jointly. You can withdraw money from a Roth IRA, and the earnings will never be taxed.

Traditional IRA

Traditional IRAs allow you to claim a tax deduction on your contributions, but you’ll pay taxes when you withdraw at age 59 ½. The contribution limits are the same as for Roth IRAs.

SEP IRA

Simplified Employee Pension (SEP) IRAs are an alternative to 401(k)s for small business owners or self-employed individuals. SEP IRAs allow you to set aside more money each year than traditional IRAs, limiting $58,000 in annual contributions. It can be a significant savings opportunity for small business owners.

Proper Tax Filing

Pre-retirement planning can help retirees minimize or avoid Social Security and Medicare surcharges taxes. 

One strategy is to diversify holdings outside tax-deferred accounts. For example, saving in a Roth IRA or Roth 401(k) and converting to a Roth IRA early in retirement can be beneficial. 

A Health Savings Account can help finance out-of-pocket health care costs in retirement for workers enrolled in high-deductible health insurance plans. 

Contributions are tax-deductible, investment growth and interest are tax-exempt, and tax-free withdrawals are spent on qualified medical expenses. 

Contributions to these accounts generally must stop six months before your Medicare enrollment becomes effective.

How much is enough?

If you want a comfortable retirement, you need to have multiple passive income streams. This passive income can give you enough money for your retirement fund and unexpected expenses and make you financially independent. 

You may wonder if you are almost there. To give a glimpse of where you are now and what actions to be taken to achieve a comfortable retirement, use this Retirement Calculator to help you pursue your retirement plans–your big goals. 

Related: Smart Financial Goals: Here’s a List of Great Examples 

Who should I seek advice for my retirement?

When in doubt, seek professional advice. Many investments and financial planners can give you the correct answers to your questions on how much is enough, especially if you dream of having a comfortable retirement. 

Conclusion

The bottom line is that there are different factors to consider before knowing how much is enough for retirement. The definition of “enough” for a comfortable pension lies in the life expectancy, the date you want to retire, your investment portfolio, and your retirement goals. 

Once you have determined all of these, you will know which retirement number is enough for you. It would be better to seek advice from professionals who can guide your retirement path.

Recommended Video:  Building Real Wealth – Living Life on Your Terms