There is a lot of misinformation in the media about how much you need to save to retire on. The magic number seems to be $1 million but this isn’t always the case. Depending on your debts, aspirations and the benefits you may be eligible for through various government agencies, the number could be higher or it could be a lot less.
This is a conversation I have regularly with clients and I always ask them one question – what does $1 million mean to you? To some people it means nothing, to others it means the world. Some of my clients are living very comfortable lives, by their own definition, with nowhere near $1 million. On the other hand, I have clients who have over $1 million and it doesn’t seem to be enough for them.
When determining how much you need to retire comfortably, what is relevant is the lifestyle you’re hoping to lead and what you’re accustomed to.
This involves looking at your income once you’ve paid for your obligations, such as tax and debt. You can then examine your current outgoings and how you plan to live in retirement. Are you already living comfortably on the amount you earn? If you are, or you’re even saving money and you have no debt, then it’s a matter of making sure you have enough saved for retirement to sustain that level of income. That means that your life from pre-retirement to retirement won’t need to change too much other than you won’t need to go to work any more.
If you’re living from pay to pay today, then we need to figure out what you need to have when you retire to get you to a comfortable level.
In the end, it comes back to lifestyle – what you’ve been used to and what you expect. This is why I like to get to know my clients very well over a long period of time. That means I don’t just have a snapshot of what life has been like for them over the last two years – I understand what they’re accustomed to, what they feel comfortable with and what is perhaps outlandish to them. Some people want to have around the world trips in retirement which may mean they need more than $1 million in retirement. While others are happy going down the coast and parking a campervan on the water for a few months a year and you may not need $1 million to do that.
Regardless of how much or how little money you have, you may benefit from speaking to an advisor so that you can make sure you have what you need to retire. Unfortunately many people don’t feel they have enough money to see an advisor or they’re scared of fees but they shouldn’t worry. We have clients who retire on less than half a million dollar and some who retire with much more. It really depends on what you need and not how much money you have.
It costs you nothing to come in and have a chat to an advisor. We don’t charge you anything until you engage us to give you advice or help you manage your finances. That’s why, if you’re thinking about retirement, it’s worth having a conversation with an advisor and finding out how we can help you achieve your goals. It might even save you money or earn you more in the long run. Who knows, you may even have $1 million dollars when you retire.
David Ross is an Executive Advisor at Viridian Advisory
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