When you retire? Be real. Will you be able to retire?

You work hard and one day, you want to retire. Sit on the beach enjoying the scenery. Or travel to all the places you weren’t able to see while you were working. How much money does one need to retire? How do you calculate it? Well, let’s see:

In the past the assumption was simply based on gross income. If you earned $50,000 just before retirement then you need to have $40,000 coming in during retirement. This study factors in savings because if you are saving money each year for retirement, once in retirement you won’t be saving and instead withdrawing so that shouldn’t count towards your required income. For example, let’s say you make $50,000 a year and you are putting $6,000 into your 401(k) each year. Instead of just taking 80% of $50,000 you would take 80% of $44,000 ($50,000 – $6,000), or therefore a retirement income of $35,200.

Reading the above quote, I think many people are not being realistic when computing how much is needed to retire. Instead of asking how much they’ll need to retire I think the question should be: “Can I retire?“.

Let’s look at the real picture…

When thinking about retirement income there are many things that are left out of the equation. Let me be more clear: things are left out of the equation that cripple their ability to accurately determine how much can be saved for retirement. Let’s say the goal is to save $6,000 per year (about $115 a week). To realistically reach this long-term goal, one would have to:

  • Have a good idea on how many children they want and stick to the plan. This will be the area many people cripple their plan. A child usually adds a minimum of 18 years to the amount of time the parent(s) will have to work.
  • How much you will realistically spend while you are retire? If you want to travel, include those costs.
  • Remember you might have to take care of parents and in-laws. Their expenses might be expensive depending on their situation.
  • If the plan is to sell your house for retirement funds, what if you cannot sell it? There are many people who have homes they banked on selling. Instead of selling they are lucky if they are able to rent it to monetize the property.

The list is endless…the possibilities that can throw saving off-track. Unexpected things happen, like companies mis-managing retirement funds.

Realistically, many are trying to survive…

Many families are trying to pay the bills on time and have a little left over to do something fun. Saving money for retirement is not a priority because they are young and they feel they have lots of time to prepare for the future. Young people put fun over responsibility. Honestly, not being able to go out on the weekend is a problem. No thoughts about working until they die.

Every day people enter unrealistic relationships that place their goals for retirement back decades. You’d be surprised how many people just add 18 years to the retire number. For example, if someone wanted to retire at 62, they figure they can have kids until they are 44. Unless the person was saving for retirement in their early 20s and continued until 62, they can’t do it.

Want your own business? What if the business does not make enough for you to retire on? Did you add that loss of income to the plan? Or that expensive car that is over budget but just looks good? Or the technology that you really don’t need but like to have to be “cool”? All the meals you eat out instead of dining in? Many are working past 70 because they have no choice.

Sometimes the question isn’t “how much”. It’s “if I can do it” in the first place.