Retirement is the single largest expense most people face in their lifetime, and saving for it can feel like an overwhelming task. As you plan for this next chapter, you may wonder, “How much do I really need to save?” The answer is highly personal and depends on your vision for retirement, current situation and future goals.

Following are four steps to help you determine how much you should save.

Step 1 – Consider Your Lifestyle Goals

The first step in determining a retirement savings strategy is to establish your retirement lifestyle goals. Will you travel extensively? Pursue new hobbies? Spend more time with family? Downsize your home or purchase a second home? Work part time? Volunteer? Donate to charities?

It’s important to be honest and detailed, as your retirement vision informs all other retirement planning decisions, including how much to save, how to invest, the rate at which you withdraw funds, your tax planning strategies, etc.

Once you have a clear vision of your desired lifestyle, consider how that lifestyle impacts:

• The cost to maintain that lifestyle, such as housing, entertainment, travel, etc.
• Your potential healthcare and long-term care needs
• Gifts, family support and legacy goals
• Inflation-adjusted costs over 20-30+ years

Step 2 – Establish a Target Monthly Income

Once you’ve defined your desired retirement lifestyle, quantify it. A common strategy among retirees is to replace 70% to 80% of pre-retirement income, but your number may vary based on the goals you outlined in Step 1.

A great place to start is by reviewing your current monthly spending and adjusting for retirement changes. For example, once you’re retired, you’ll likely pay less in payroll taxes and commuting expenses, but more in healthcare and entertainment/leisure expenses. When determining your monthly income target, it’s also important to factor in inflation and taxes, as these expenses can have a significant impact on your retirement savings over time.

Once you have an idea of your monthly income target, you can work backward to calculate the amount of savings you may need to support that income.

Step 3 – Understand Your Potential Income Streams

The good news is, your savings likely won’t need to carry the full load. To understand the gap your savings must fill, take time to understand what other sources of income can help support your retirement needs.

Common income streams include:

• Social Security
• Pensions and annuities
• Employer benefits, such as deferred compensation or continued health coverage
• Income related to rental properties, business interests, part-time work, inheritances, etc.

Subtract these reliable income streams from your target monthly income to determine your income gap. For example, if your income target is $10,000 per month and other sources cover $4,000, your savings will need to generate an additional $6,000.

Step 4 – Stress Test Your Plan

This step helps ensure your savings target holds up under real-world circumstances. Your retirement savings can be highly impacted by market volatility, inflation spikes, unexpected healthcare expenses, a long lifespan, changes in tax laws and more. Running a stress test can help you anticipate how these factors may impact your long-term retirement security.

Your financial advisor can help you run various projections and adjust your income strategy based on the specific risks you face.

How an Advisor Can Help

When it comes to saving for retirement, you only have one chance to get it right. That’s why it’s important to seek the guidance of an experienced financial advisor who has navigated the transition before. In addition to helping you establish a savings target, your advisor can provide holistic retirement planning support by integrating tax planning strategies, investment allocation, estate planning and ongoing monitoring to keep your plan on track as your life evolves.

If you could use some help planning for your retirement, we would love to have a conversation. Please schedule a call with a member of our team.