No, we’re not talking about your credit score, although that’s important too. Instead, we’re talking about the age when your nest egg runs out. Whether you’re a thirty-something planning for your child’s college education, or fifty years old looking ahead to retirement, it’s vital to know how long your savings will last once you reach retirement.
As we pointed out in another blog post, social security doesn’t pay much now and it’s likely to provide less in the future. This makes retirement planning all the more vital. The sooner you start planning for retirement, the more golden your golden years will be. Those who plan for retirement early-on will be in a better position to make adjustments and financial choices to ensure that they are prepared for retirement.
At the same time, even if you’re a bit long in the tooth, it’s vital to know your number. When it comes to retirement, you can’t bury your head in the sand. Doing so will only cause hardship further on down the road. It doesn’t matter if you’re set to retire tomorrow, in 10 years, or even if already retired, you need to know your number.
By doing so, you’ll have a better idea of how much you can spend today, tomorrow, next year and beyond. You’ll also have a better idea of what you’ll need to do in the event of an unexpected life event such as unemployment or a medical emergency.
Afraid of Knowing Your Number?
People don’t like hearing bad news. Many of us would simply rather be left in the dark. When it comes to retirement, we’ve seen people ignore their financial situation, fearing the answer. If you feel this way, you’re not alone.
But think of it this way. Let’s say you know a regular smoker. One day, he develops a really bad cough and even coughs up blood. As a smoker he’s at risk of developing cancer. Now, what would your advice be? Just ignore it and sleep it off? Or go and see a doctor? You’d advise him to see a doctor, of course.
If he does have cancer, and he catches it early, his prognosis will be much better. The same is true with retirement and financial planning. If you identify a problem early on, your prognosis will be much better. So, while finding your number can be scary, it’s often just what the doctor ordered.
So You Know Your Number. What then?
Okay, so we’ve made it very clear that it’s important to know your number. So, what will you actually learn? First, “the number” will tell you how much money you’ll need during retirement or how long your savings will last. This baseline will help you plan for a financially stable, if not fruitful, retirement.
If your number is “high,” meaning your savings will last at least your lifetime, you may be able to afford that dream summer cottage, or classic muscle car. Or perhaps you’re looking forward to an extended tour through Europe. If you’ve been planning for retirement diligently, you may have more than enough assets to ensure that you’ll be able to live comfortably through retirement.
On the other hand, if the number is low, you’ll know that you need to tighten the belt. Just as importantly, you’ll also know how much money you need to raise to ensure that you can enjoy a comfortable retirement. Having this information in hand will allow you to adjust your financial strategies and management.
Unfortunately, if you’re short of your financial goals you may have to forgo certain expenditures. Remodeling your home, buying a new car, or otherwise spending large sums may simply be out of the question. You may also need to get a second job or delay retirement for a few more years. A more aggressive investment approach may also be warranted.
Those Nearing Retirement MUST Know Their Number
If you’re approaching retirement, it’s all the more vital to know your number. Quite simply, the clock is ticking and if you’re not financially prepared for retirement, you could end up suffering immense financial hardship. By knowing how much you need, you’ll be able to adjust.
Unfortunately, as you near retirement it becomes more and more difficult to change your financial position. You may have to take drastic measures, such as selling your home and moving into a smaller one.
Some retirees are even choosing to retire in more affordable countries, such as Mexico, Costa Rica, and Malaysia. Having to make dramatic decisions while under financial duress is never fun, but it is sometimes necessary.
It’s Not Just About Retirement
Prudent financial planning is vital for your quality of life. Let’s say you hate your job. Maybe it’s the hour-long commute, or the office politics, or your supervisor. Gallup found that 51% of Americans either want to quit their job or at least keep an eye on job openings.
By understanding your financial situation and retirement number, you’ll know if you can quit your job to look for another one. You’ll also know if you need a higher salary in order to prepare for retirement.
Or maybe you want to start a business? Good for you! However, businesses are high risk investments. By knowing your retirement number, you’ll know how much capital you can risk. If you already have enough for retirement and then some, now might be the perfect time to roll the dice.
By knowing your number, you’ll also be more prepared for unexpected events in life. What if you fall ill and miss work? What if you need to pay for expensive medical treatments? And when it comes to your job, you won’t always be able to leave on your own terms. You could be laid off or your role could be eliminated as part of a company restructuring.
By knowing your number, you’ll be better prepared for whatever life throws at you.
Using a Retirement Calculator to Find Your Number
Convinced that you need to know your number? Good! Unfortunately, figuring out your number can be very complex. You have to consider many factors, including interest rates, asset appreciation/depreciation, social security income, and various monthly costs (such as your mortgage).
Fortunately, there’s an easy solution: use a high-quality retirement calculator that will consider all of the necessary factors. There are many retirement calculators out there. Unfortunately, the vast majority of them aren’t very good. You can read about what features are found in a “good” retirement calculators and what types of calculators to avoid in part I of our retirement calculator comparison!
While building our retirement planner, we closely studied the best available, learning from their successes and shortcomings. We then designed our retirement planning tools to cover all of the essential data points and scenarios.
We also considered our end users very closely while designing our calculator. Software can be difficult to use, especially if you’re not technologically inclined. Software development, meanwhile, is a tricky mix of art and science. That’s why we spent a lot of time considering how to build a financial calculator that is easy to use but also powerful and flexible enough to enable you to find your number.
We believe we’re the best retirement calculator out there, but there are a few worthy contenders (and many unworthy pretenders!) You can read why our calculator ranked highest in part II of our retirement calculator comparison.
If you overlook anything while planning for retirement, you could be exposing yourself to serious risks. A simple oversight today could cause immense hardship after you retire. And by the time you do retire, it may be too late to adjust. You’ll struggle to create a stable, substantial revenue stream. So don’t skimp when it comes to your retirement planning and the tools you use!