The prospect of retirement weaves together dreams of leisure, exploration, family, and well-earned happiness. Yet, amidst the anticipation of retirement lies a pivotal question that echoes in the minds of many pre-retirees: “Do I have enough to retire?”.
Beyond the numerical calculations and financial forecasts, there exists an overlooked element of the art of visualizing your ideal retirement lifestyle.
In this blog, we’re exploring not just the dollars and cents of retirement planning, but rather the profound importance of painting a vivid picture of the life you aspire to live after leaving the daily grind of the workforce.
Assessing Your Current Finances
The start of your journey to answering the question of “Do I have enough to retire?” is a comprehensive assessment of your current financial situation.
You can begin this process by reviewing your current retirement savings and projected retirement expenses.
At Mission Street Wealth, we first make a determined effort to estimate what your monthly expenses are most likely going to be in the first 12 months of retirement. Then, we determine what amount would likely need to be withdrawn from your investments after accounting for what you’ll receive from Social Security, pension, and any other type of income.
We then gross that amount up to take current taxation into account. Then, we capitalize that number by 4.5% for the first retirement year, with the dollar withdrawal amount increasing by 3% per year to offset inflation.
Let’s look at an example of someone looking to retire in the next ten years.
If they retired today, they’d need a net after-tax withdrawal of $50,000 from their investments in the next 12 months. When grossed up to account for an assumed 30% tax rate, that’s roughly $67,000. Ten years from now, adjusted for inflation, this number is $100,000.
That said, the capital needed in 10 years to achieve the targeted annual withdrawal of $100,000 is 4.5% of approximately $2.2 million. This is the amount this pre-retiree would need to save in the next ten years to fund their ideal retirement.
Once that process is complete, it can be determined how much must be saved per month until the desired retirement date. This also allows you to test the reasonableness of the ideal retirement timeline and the yearly withdrawal amount.
Now, of course, knowing the numbers behind your retirement readiness is essential, but it’s also critical to know what you will do with those hard-earned dollars once you retire.
Visualizing Your Ideal Retirement Lifestyle
Take a moment to define what retirement means on a personal level. For some, it may involve escaping the hustle and bustle of daily life; for others, it could be an opportunity to pursue new passions. Understanding your aspirations is the first step in crafting a retirement that resonates with your values and desires.
Envision the critical elements of your ideal retirement lifestyle. What does your daily routine look like? Do you see yourself sipping coffee on a porch overlooking the mountains or strolling through vibrant markets in a quaint neighborhood? Consider what environment, activities, and pace of life that brings you joy. This mental imagery is a powerful guide to help steer your financial decisions toward supporting the lifestyle you envision.
The Role of Financial Planning
Financial planning becomes truly meaningful when it acts as a conduit between your financial goals and the lifestyle aspirations that you hold dear. A successful retirement plan links these goals and harmonizes them into a cohesive strategy.
For example, if your dream retirement involves traveling, your retirement plan should account for the costs of these journeys and strategize investments and savings to help fund these experiences. This cohesive approach ensures that every financial decision propels you closer to your envisioned retirement.
Navigating the intricate terrain of retirement planning can be a daunting task to do on your own. This is where the expertise of a financial advisor becomes invaluable. An advisor can help you articulate your goals, understand the implications of financial decisions, and create a robust retirement plan tailored to your unique aspirations.
Potential Challenges and Adjustments
Life is unpredictable, and unexpected expenses can surface at any time. This is where the role of an emergency fund comes into play. We recommend setting aside a couple of years worth of living expenses in a money market fund. This can be helpful in an emergency like switching your retirement withdrawal strategy due to market changes.
Since retirement planning is a long-term strategy, flexibility is another crucial aspect of a solid retirement plan. Circumstances can change, whether health, family dynamics, economic conditions, etc. Regularly reassess your plan and be open to adjusting it as needed. The ability to adapt can help you stay on course in a turbulent environment.
Answering the Question
Ultimately, each person’s answer to “Do I have enough to retire?” will differ. Remember that the journey to retirement isn’t just about reaching a financial milestone. It’s also about celebrating the arrival at a destination where your dreams take center stage.
Let the vision of your ideal lifestyle be the compass that charts your retirement course. May your golden years be filled with all the leisure, exploration, and happiness you crave and deserve.
Please reach out today if you have questions or need help on your path to creating your ideal retirement plan.