Years ago one million dollars was the dream amount for retirement. The thought of a million dollars brought dreams of wealth and luxury. However, is a million dollars enough to retire in 2011? For many ready-to-retire baby boomers, maybe not.
Obviously, each person will need a different amount of money to secure their retirement years based on several factors.
- Current debt situation
- Lifestyle you want to live in retirement
- Portfolio performance after retirement and Inflation
- Life expectancy
- Health Insurance Coverage and your health
- Our current social security program
Your current debt situation is a major factor in determining a secure retirement. Typically, most Americans’ house payment accounts for 25%-28% of their monthly income. At either percentage it’s a big chunk of the monthly income. If you add auto loans and credit card payments into the mix then obviously you won’t be able to retire with a million dollars without having some type of extra income in retirement. Go into retirement debt free and a million bucks will probably last you through your golden years.
Another major factor in a secure retirement is your lifestyle expectancy. If you plan on spending your golden years on the lake fishing or growing a garden in the back yard you will probably be pretty safe with a million dollars. However, if you want to fulfill your retirement dreams and travel the world, you better get busy saving.
Inflation will play an important part in your nest egg. A vital part of ensuring your retirement savings will last is the ability to create some type of interest on the money you have stored away. Most financial experts will tell you to invest in safe low risk funds after you retire. However, if the inflation rate is more than your interest rate you will essentially be losing money. Be sure to keep a balanced portfolio even after retirement so you can stay ahead of inflation.
How long do you plan on living? Sure we want to live as long as we can and be completely healthy, but longer lives mean we need more money. If you plan your whole retirement savings around living until you are 80 and then live to be 90 you may be in some trouble the last 10 years of your life. Let’s face it, nobody knows how long they will live, but you want to plan for several years over the average life expectancy.
Unfortunately the cost of health care keeps rising and the benefits keep dropping. Health care and health insurance will consume a large portion of your retirement savings. Be sure you plan for these rising costs before you pick your retirement date. A Fidelity Investments report shows that typical out of pocket costs for health care after retirement are over $225,000! Trust me that number will probably not decrease as you get closer to retirement.
Ideally social security will still be around for all of us when we are ready to retire. The maximum benefit from social security is somewhere between $25,000 and $28,000. It doesn’t sound like a lot, but it makes for a great boost in your current retirement plan. Unfortunately, many Americans depend solely on the social security system to fund their retirement and the truth is if current trends continue there won’t be enough money left in the system to secure those funds in the future. Personally, I am not planning on the social security system to fund my retirement.
If you are in doubt about your retirement situation sit down with an honest financial adviser or professional personal finance manager. It may cost a few dollars now to talk to a professional, but the payout will be far greater to secure your retirement.