As a financial advisor, this is a frequently asked question. How much money do I need to save to retire comfortably? In other words, what is my number?
Much has been written about this topic. Schwab recently released a survey of 1,000 401(k) participants across the country indicating that on average, Americans believe they need $1.7 million to retire. That may seem like a reasonable number, but is it? A recent CNBC poll showed that two-thirds of U.S. workers are either very or somewhat confident that they will be able to live comfortably throughout retirement. However, a study by the Employee Benefit Research Institute showed that only 42% of Americans have done any retirement calculations. And on top of that, according to Fidelity, the average 401(k) balance in the U.S. is $297,700 which is a far cry from $1.7 million.
So, where is the disconnect and how can you actually determine what your own “number” is?
Although every person’s situation is completely different, there are really five things to consider when determining how much you need to save for retirement. The impact of underestimating any of these factors could be catastrophic, so this is not the time for optimism. This is the time to be very clear-eyed about setting your goals and expectations. Let’s get started.