Will You Be Able to Replace Your Paycheck When You Retire?

Answers to three important questions when you consider saving for retirement.

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1.  How much money will I need?

According to Vanguard, the average 401(k) balance in 2017 was a little over $100,000 per person.  If one were to retire with savings of only $100,000, they would be able to sustainably generate about $4,000 in annual income.  Obviously, this is not enough savings for most people to live comfortably.  If a person were to spend $5 a day on breakfast, $10 a day on lunch, and $15 a day for dinner, they would need about $10,950 a year just to eat in retirement.  If one were to retire at age 65 and live to the age of 85, they would need 20-years-worth of savings to pay for food which totals $219,000.  A married couple may need to double this amount ($438,000).  This is without factoring in inflation costs! 
 

2. My budget is already too tight, what should I do?

Create an honest determination of your expenses.  Take into consideration what you spend on essential household items such as utilities, groceries, insurance, auto expenses, clothing, childcare, etc.  Then look at what you spend on non-essential expenditures like restaurants, entertainment, vacations, hobbies, and impulse purchases.  Be careful with debt and use it sparingly for necessities only (e.g. buying a home or paying for college).  Without eliminating all “fun” things from your life, ask yourself if what you are spending money on is something you need or something you want.  If it is something that you want, determine if making that purchase will truly enhance your life, or whether it is something you are better off without. Saving is more of a function of behavior than resources.  Merely forgoing the $4 morning coffee can help one save over $1,400 a year.  If at the end of each year, you invested that money for a 30-year period at an interest rate of 6%, you would have a savings account valued at over $155,000!
 

3. I’m worried about where I should put my savings.

All investments have risk.  Before you invest in stocks, bonds, or mutual funds, make sure that you have emergency cash set aside in a bank account.  After you have sufficient cash reserves, make sure that you save consistently and diversify your investments with the help of a professional to ensure that they are appropriate for your situation.  Take advantage of company retirement plans than match employee contributions and save as much as you can possibly afford.  “I wish I never saved so much for my future” is a phrase that I believe has been uttered by no one, ever.

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The opinions expressed are those of Samuel Spanos and not necessarily those of Raymond James & Associates and subject to change at any time.  Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed.