Am I saving enough for retirement?

Now, no matter where you are in your savings journey, the answer to this question is crucial to securing your long-term financial independence and legacy-building goals.

The trouble is that some individuals often focus on a savings number instead of a lifestyle outcome.

In fact, some will tell you that all you need to do is save up six times your salary by the time you turn 50, and you’re all set, right?

Well, the truth is that some individuals spend so much time focused on how big their nest egg should be that they forget what that figure represents in the first place.

That’s why, when thinking about how much you’re saving for retirement, one approach you may want to consider is setting aside enough money to cover future living expenses and enable you to make gifts or big-ticket purchases and deal with potential unexpected health concerns.

Now, make no mistake: rules of thumb and round numbers are helpful in figuring all of this out.

But, knowing what those figures represent with a greater degree of precision can give you peace of mind, knowing that you’ve saved enough now to meet those future lifestyle needs.

Know How Much You Plan to Spend Post-Employment

To be sure, when it comes to effective retirement planning, knowing how much you need to set aside now to meet your future lifestyle needs can make the difference between living comfortably and living in anxiety during your golden years.

And so, how do you determine how much to set aside now to cover future costs besides using rules of thumb?

Well, to figure out your ideal retirement nest egg need, you’ll first need to understand what your lifestyle will look like after you stop working.

And so, how do you go about figuring this out when you’re 10, 20 or even 30 years away from retirement?

Well, let’s take a look at a few ways to calculate your anticipated living expenses even when they’re so far in the future.

To start, you can use a basic approach by comparing your future lifestyle spending to your current household expenditures. The point here is to establish a baseline for your retirement budget based on your current spending trends.

Now, this approach is rather straightforward because it provides a clear, relatable benchmarking of future spending: will you spend more or less in the future compared to how you’re spending today?

For example, if you currently enjoy gourmet dining and weekend getaways, it’s reasonable to assume these preferences will continue into retirement, possibly even grow as you’ll have more time to indulge in these interests.

Therefore, you’ll want to account for this lifestyle change and ensure you’re saving enough to meet your spending need.

Now, another way to figure out your future spending needs is to take a more introspective approach by visualizing what your daily life in retirement looks like.

Here, this approach goes a little deeper because what you’re doing is picturing not just your daily activities but also where you are, who you’re with, and how you feel at the time.

And, while this work requires more of a softer approach, this approach is nevertheless invaluable because it provides a comprehensive, emotionally resonant understanding of your future needs.

How so?

Well, imagine yourself in a typical week during retirement. Here, you might see yourself taking a cooking class in Tuscany, volunteering at a local school in your community, or enjoying leisurely mornings with your family on your estate.

And so, this visualization helps tailor your financial planning and savings needs to these specific goals by allowing you to back into some hard numbers to support these daily activities.

And that’s something that a rule of thumb will be hard-pressed to give you.

Finally, when it comes to figuring out how much money you’ll need to save to cover your future living expenses, consider using your value system as a guide.

Remember, your value system is simply a collection of guiding principles and beliefs that influence your behavior and decisions.

And why should you consider your values when it comes to calculating your retirement savings need?

Well, that’s because when you focus on what you hold most dear, it’s easier to understand where, when, and how you plan to spend your money.

Indeed, while your interests and circumstances can change over time, the fact is that your values are often more constant from one decade to the next.

So then, if family and community have always been central to your life, having enough money set aside for family trips and dining out with your loved ones will be significant aspects of your retirement spending and therefore, something you want to plan and save for.

Ultimately, it’s not just about the figures in your bank account but about ensuring those figures enable a retirement that’s rich in experiences, relationships, and personal fulfillment.

Plan for Big-Ticket Distributions that Can Deplete Your Savings

Alright, so once you have your future lifestyle spending all mapped out, you’re all set, right?

Well, not so fast.

And that’s because, beyond your regular routines, you also need to consider big-ticket spending that is likely to come your way.

To be sure, as you navigate your path toward a fulfilling and affluent retirement, it’s crucial to recognize that your financial journey extends beyond personal comfort and security.

When it comes down to it, you’re not just building a nest egg for your own retirement, in many cases you’re building generational wealth to leave a legacy, right?

So then, this legacy isn’t solely about the wealth you accumulate but also about the impactful gifts you can offer to your loved ones.

And, these gifts will likely make a big difference during key life events like financing your grandchildren’s education, providing seed capital for your children’s first home or startup, or supporting large family ventures.

And so, why does planning for these things matter now?

Well, imagine the joy and pride of contributing to your grandchild’s college education, enabling them to pursue their dreams without the burden of student loans.

Or imagine the satisfaction of providing seed capital to your children, empowering them to buy their first home, or allowing them to embark on their own entrepreneurial journey.

In this context, these are not just financial transactions, they’re the cornerstones of your family legacy, which weaves your success story into the fabric of the rising generations.

So then, it’s crucial to look beyond desired lifestyle spending needs, and begin planning for these gifts and large expenditures, right?

That’s why your approach to retirement planning should be a finely tuned process that goes beyond ensuring a comfortable lifestyle and involves a detailed understanding of your one-off spending needs that encompasses your personal expenses and your aspirational contributions to family milestones.

So then, what steps can you take now to plan for these irregular spending goals?

Define and Prioritize Your Gifting Goals

Well, you can start by thinking about what kinds of gifts you may want to give and what these gifting goals mean to you.

For instance, consider your desire to fund your grandchild’s college education. You can research the current costs for various colleges and project these costs into the future, considering inflation.

So then, if a four-year degree costs around $200,000, a conservative estimate might suggest that this could inflate to well over $500,000 or more in 18 years.

At the same time, if you’re considering setting aside seed capital for a child’s home or business, look at current market values in what you might consider ideal neighborhoods and project those costs into the future.

Ultimately, this step is about more than pinpointing exact figures but getting to a realistic range to work with when it comes to how much you need to save.

Assess Your Current Financial Position and Project Future Growth

Next, evaluate your current and future financial situation, including your savings, investments, and expected income streams.

Here, what you’ll want to do is assess how much of your current wealth can be allocated towards these goals without compromising your own retirement lifestyle.

In other words, if your aim is to save $300,000 for a grandchild’s education, then you’ll need to understand how this spending goal fits into your overall investment plan.

Then, what you’ll need to do is to gauge whether your portfolio can accommodate this need, given your anticipated investment rate of return and future cash drawdowns.

At the same time, if you plan to provide $100,000 as seed capital for your children’s business startup in 15 years, then you’ll likely need to consider how much you need to invest now, given your portfolio’s growth potential.

Create a Tailored Investment Strategy

Finally, based on your gifting goals and current financial situation, you’ll want to consider developing an investment strategy that aligns with all of these objectives.

For example, long-term savings goals, like funding education spending for your grandchildren in 18 years, might require you to lean towards a savings and investment strategy with a higher growth potential, given the extended time horizon.

On the other hand, for a shorter-term goal that’s just a few years away, a more balanced approach might be suitable.

Here, for example, if you need to accumulate an extra $300,000 over 18 years to fund additional education spending, then considering an average annual return of 6%, you’ll likely need to set aside around $1,000 per month.

Either way, it’s crucial to remember that these steps here are iterative and should be revisited on the regular.

That’s because financial markets, goals, and life changes will inevitably happen.

So then, by frequently reviewing and occasionally adjusting your plan, you’ll ensure that it remains aligned with your goals and reflects current market realities.

At the same time, by following this process, you set a clear path toward achieving your gifting goals and ensure that these ambitions enrich your family’s future without compromising your financial security during your golden years.

Have a Plan for Your Care

Alright, so now we’ve talked about figuring out your future lifestyle needs and factoring in one-off spending as part of saving for your retirement nest egg.

Now, one final thing to consider is planning for your healthcare needs just in case you need the help.

To be sure, as you meticulously plan for a future where you can generously support your loved ones and enjoy a comfortable retirement, it’s also crucial to also consider the potential impact of unforeseen medical expenses that you might incur as well.

Now, before you go off and ignore these costs, the fact is that these expenses are often underestimated when it comes to financial planning, and this forecasting error can significantly derail even the most well-thought-out post-employment plans.

How so?

Well, imagine that you’ve carefully calculated what’s needed for your grandkids’ education, you’re ready to support your children’s first business ventures, and you’re living the sweet life, enjoying your retirement years traveling and pursuing hobbies.

Then, tragedy hits.

An unexpected health issue arises, like a sudden illness, chronic condition, or the need for long-term care, your hope of funding your gifting goals could come to an end, and the financial implications can be staggering.

How so?

Well, consider the cost of long-term care.

Here, the costs can easily run into thousands of dollars per month.

And even with a robust retirement fund, this level of expense can rapidly deplete your financial resources when you’re trying to cover too much spending at the same time.

So then, without adequate planning to cover health-related expenses, you might find yourself in a position where the funds you intended for your grandchildren’s education or your children’s business startup now need to be redirected to cover your medical needs.

And so, this shift not only impacts your financial stability but also alters the legacy you had envisioned for your life and your family.

At the same time, it’s crucial to note that healthcare costs typically rise faster than general inflation. And so, as you age, the likelihood of needing more extensive medical care increases at a faster clip.

So then, this reality means that healthcare costs can become a progressively more significant part of your overall retirement budget, potentially squeezing out other planned expenditures.

And so, what can you do to mitigate these expenses, avoid running your nest egg dry, and ensure you’ve saved enough for retirement?

Health Savings Accounts (HSAs)

Well, to start, consider contributing to a Health Savings Account or an HSA.

Now, the great thing about HSAs is that they offer a triple tax advantage where contributions are tax-deductible, the account grows tax-free, and withdrawals used for qualified medical expenses are not taxed.

Now, for someone in a high tax bracket, this can be a significant benefit.

An extra point to consider here is that the funds in an HSA can be invested, much like a 401k, allowing for potential growth over time. And this growth can be especially advantageous if you start early and let the account compound over time because it can provide a substantial reserve for healthcare costs in retirement.

So then, as you review HSA options, consider how they fit into your overall investment strategy, evaluate the investment options within the HSA, and align them with your risk tolerance and investment time horizon.

Long-Term Care Insurance

Another approach to consider when preparing for med ical expenses is purchasing long-term care insurance to defray costs and preserve your retirement savings.

Indeed, given the high cost of long-term care and the likelihood of needing it as you age, depending on your situation, long-term care insurance can be a critical component of your overall financial plan.

That’s because this sort of coverage helps cover the cost of care that regular health insurance or Medicare does not, which includes help with daily activities and covering nursing home care expenses.

So then, when exploring long-term care insurance, consider factors like the benefit period, daily benefit amount, inflation protection, and the waiting period before benefits begin.

Ultimately, balancing these factors with the premium costs will be key to ensuring that this approach is a right fit for you.

Continuous Care Communities

And finally, if you anticipate that your assisted living expenses will be more than a temporary outcome, then joining a continuous care retirement community (CCRC) might be an attractive option you may want to consider to manage future healthcare costs.

Now, these communities offer a spectrum of care, from independent living to assisted living and skilled nursing care, all in one location.

And the benefit here is that this continuity of care can provide peace of mind and simplify future financial planning.

Even so, when considering a CCRC, it’s crucial to understand the financial model, like what entrance fees the community charges and what the ongoing monthly fees typically look like, because these expenses can vary widely.

So then, reviewing the contract types (like life care or fee-for-service), the services included, and any additional costs involved is essential to understanding how this approach will fit into your overall financial plan.

It’s also crucial to evaluate the quality of care you’ll likely receive, the community’s financial stability, and the lifestyle it offers to ensure it aligns with your expectations and values.

Either way, not planning for potential medical expenses can drastically alter the outlook for your retirement and legacy plans.

Indeed, when not managed carefully, unexpected medical expenses can shift your financial focus from building and sharing wealth to managing healthcare costs, affecting not only your quality of life but also your ability to fulfill your goals of leaving a legacy to your loved ones.

Spending Money in Retirement: Are You Saving Enough?

When it comes down to it, effectively planning for retirement extends beyond merely accumulating a certain amount of savings.

It’s about ensuring that the funds you set aside today align with the lifestyle you envision for your ideal future.

And this includes not just covering your day-to-day living expenses but also your ability to enjoy leisure activities, support loved ones, and manage unforeseen health-related costs.

So then, by focusing on the life you wish to lead after your retirement and understanding what your savings represent, you can then develop a more targeted and meaningful savings strategy that lasts the test of time.

With this approach, you can move forward with confidence, knowing that your savings will be sufficient for building generational wealth while taking you one step closer to becoming the master of your own financial independence journey.