How Much Do My Wife and I Need to Retire?

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    How Much Do My Wife and I Need to Retire?

    Planning for retirement is a major life milestone for any married couple. Ensuring you and your spouse have adequate savings to live comfortably after leaving the workforce requires careful financial preparation. However, the exact amount needed can seem like an elusive target that is difficult to pin down.

    In this comprehensive guide, we will break down the key factors that determine your retirement number and how to realistically estimate what you need saved.

    Our goal is to provide a practical framework and roll-up-your-sleeves approach so you can gain a clearer picture of your unique retirement savings situation. By understanding the basics, you’ll be empowered to take the necessary steps to achieve financial security in your golden years together.

    Let’s get started!

    Estimating Average Lifespans and Retirement Duration

    The first variable to consider is how long you both expect to be retired. Obviously, this depends on when you plan to stop working as well as your estimated lifespans.

    According to the Social Security Administration, the average life expectancy for individuals retiring at age 65 is:

    • Women: 86.6 years
    • Men: 84.4 years

    However, these are just averages – it’s quite possible one or both of you could live well into your 90s or even 100s. Given increasing lifespans and advances in medicine, I’d recommend estimating 25-30 years of retirement as a prudent planning baseline.

    Regarding when you retire – the standard for a comfortable retirement is considered between ages 62-67 when you can claim reduced or full Social Security benefits. Discuss your ideal target retirement dates together so you know how many years of expenses to plan for.

    Accounting for Inflation Over Decades of Retirement

    Inflation poses a serious risk for purchasing power long-term. The prices you pay for essentials like housing, healthcare, gas and food will likely be much higher 30 years from now.

    According to the Bureau of Labor Statistics, average inflation since 1960 has been 3.22%. To determine your real rate of return needed, experts advise factoring inflation plus 2-3% to actually maintain buying power over multiple decades.

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    This means if you expect 25-30 years of retirement, conservatively estimate your annual costs will be 6-8% higher decades from now due to inflation. Factor this rate of increase into your long-term financial projections.

    Breaking Down Retirement Expenses

    Now that we’ve covered some framing considerations, let’s take a deeper look at your likely retirement costs. It’s important to itemize specific expenses, not rely on vague percentage guidelines.

    The following is a breakdown of major fixed and variable retirement expenses you should incorporate:

    • Housing – Mortgage payoff or ongoing costs like rent, insurance, taxes, and utilities
    • Healthcare – Premiums, deductibles, copays, dental, vision, long-term care if needed
    • Food – Estimate $4,000-$6,000 annually per person depending on lifestyle
    • Transportation – Car payments, insurance, gas, maintenance, public transit if applicable
    • Insurance – Life, home/renters, car, umbrella policies
    • Taxes – Income taxes in retirement on RMDs, Social Security benefits, and pensions
    • Savings replenishment plan – To protect from longevity, inflation must constantly add back to savings at a minimum of 2-3% annually
    • Entertainment/travel/gifts – Don’t forget to continue enjoying life!
    • Miscellaneous – Clothing, personal care, hobbies, subscriptions, cultural activities, etc.

    Total up these categories based on your specific living expenses today with reasonable future inflation. This will provide your core baseline estimate before factoring any additional discretionary costs.

    Accounting For Future Sources of Income

    Now it’s time to determine how much ongoing income you can expect in retirement from sources other than personal savings. This income will help offset expenses and reduce the amount you need individually saved.

    Common sources of retirement income include:

    • Social Security – Estimate your projected benefit amounts at your desired claiming ages using mySSA.com
    • Pensions – Determine guaranteed income from previous employers
    • IRAs and 401ks – Estimate safe withdrawal rates of 3-4% from your projected account balances
    • Rental property income – Account for this if applicable
    • Part-time/side work in retirement – Be prudent but factor any expected income
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    Subtract your total estimated annual retirement income from sources other than savings from your total annual expenses. This will reveal the “net” that must be covered by your personal retirement accounts and savings each year.

    Determining an Overall Retirement Savings Target

    Now for the big reveal – calculating your overall retirement savings goal as a couple. To do so, take the annual “net” funding needed from your personal retirement accounts and multiply by 25, with reasonable adjustments as follows:

    • If relying more on fixed income sources like pensions,Social Security – multiply annual net by 15-20x
    • If primarily dependent on retirement accounts – multiply by 25-30x
    • If conservative and planning for longevity – multiply by 30x or more

    This will give you a total target savings number to shoot for between the two of you factoring in all the variables we’ve discussed.

    As a general guideline, most experts recommend having 10-12 times your final annual income saved to maintain your standard of living. But remember, every situation is different depending on when you plan to retire, cost of living, health factors and longevity goals.

    Creating an Action Plan Together

    You now have a clear sense of the total savings amount you and your spouse need to accumulate before retiring. However, the real work has just begun – creating a strategy to bridge the gap if you’re not there yet.

    Start by having an honest conversation about your current savings balances versus the target. Then brainstorm ideas in the following categories:

    • Pay down high-interest debt to free up cash flow for investing
    • Adjust annual budget to maximize retirement plan and account contributions within IRS limits
    • Refine your investment allocation and risk tolerance for optimal returns
    • Consider working an extra 1-3 years if short to make a huge difference
    • Research catching up contribution options if 50+ to supercharge savings
    • Delay claim dates for Social Security if needed for higher lifetime benefits
    • Consult a financial planner if facing significant shortfalls for personalized planning
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    With diligent execution of a thoughtfully tailored plan, you can stay on track together to ensure lifelong financial comfort in your retirement years. Just take it one step at a time and keep motivational long-term goals in mind.

    Staying on Course to Continued Success!

    With advancing ages also comes changing life circumstances that require periodic retirement plan adjustments. Staying vigilant about reviewing your goals and progress is important for long-term success. Consider:

    • Assessing your target every 5 years or upon job/life changes
    • Monitoring investment performance and reallocating as needed
    • Adjusting spending plans with cost of living increases
    • Discussing catch-up savings if running behind schedule
    • Factoring in added expenses like elder care, grandkids, hobbies
    • Retesting projections if interested in early retirement
    • Consulting a financial planner as a retirement reality check

    By keeping retirement planning front and center as a married team, you give yourselves the best possible chance of reaching your goal. With commitment to open communication and regular evaluation, you can tackle whatever challenges arise and make adjustments proactively together.

    Conclusion

    With diligence and persistent action, achieving decades of financial security is within your reach as long as you have clear savings objectives and a customized collaborative plan. Estimating your lifetime costs, estimating income sources, and setting a total target number is an important start.

    From there, crafting an intentional strategy incorporating realistic adjustments over time helps you stay on track as a married pair. By prioritizing regular financial check-ins, you ensure your late-life years together are filled with relaxed enjoyment of all that you have worked for.

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