What You’ll Need To Retire
Folks always ask us, “How much will I need to retire?” And the answer is, “It depends.” One important piece of the retirement puzzle is, “How much are you willing and able to cut from your budget?” We’ll talk about that today on Faith and Finance.
Many of the expenses associated with work go away when you retire. Because of this, many experts say you’ll generally only need 75-80% of your working income when you retire.
The problem is, many studies show the average retirement budget is only about 60% of working income. So if you’re working and making, let’s say $75,000 a year, you’ll need at least 75% of that, or a little over $56,000, in retirement.
But if you’re on track to generate only 60% of your working budget from Social Security benefits and income from your investments, you’ll be short $11,250 a year — or about $940 a month.
That means you’ll have to work longer to build more savings that generate more retirement income, or continue to work part-time to make up that $940 monthly shortfall. That is unless you’re able to cut your retirement expenses enough to close that $940 gap or at least make it smaller. Now, how do you do that?
Let’s start with the one that’s probably the most obvious. It’s the big house you raised your family in, but which is now largely empty. Do you really need all that room?
Now might be a great time to downsize into something smaller. Besides lowering your maintenance costs, utility bills, and taxes, downsizing should leave you with cash left over that you can convert into an income stream, getting you closer to your retirement needs.
As long as you’ve lived in the home for two out of the last five years, you can exempt the first $250,000 in capital gains on the sale of your home — or $500,000 for married couples.
Now, the next biggest way to cut your retirement budget is with transportation. If neither you or your spouse is working, do you really need two vehicles? Could you sell one of those cards and pocket more cash? You would also save on vehicle-related costs.
Now, let’s look at insurance next, and specifically, disability and life. First off, disability insurance is designed to replace lost income when you’re recovering from an injury and illness and not able to work.
Obviously, if you’re retired and not working, you have no working income to replace and therefore you have no need for disability insurance. Yet some people still carry it. Drop it the day you retire.
Now, what about life insurance in retirement? If your children are now grown up and out of the house, they’re no longer dependent on your income. So you can cut back on life insurance.
Also, look at interest on a credit card balance or other consumer debt. It’s never good, but it’s downright terrible when you’re retired and trying to adjust to a smaller income.
Take some of the cash you’ve freed up with the previous suggestions and pay off your credit cards as quickly as you can.
On today’s program, Rob also answers listener questions:
Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network as well as American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community, and give as we expand our outreach.
Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network and American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community and give as we expand our outreach.
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