Retirement Strategy: How Much Should I Save?

“Will I outlive my retirement money?” This is one of the top fears for people who are starting to prepare for their retirement years.

Determining how much money you need in retirement is a process. It shouldn’t be a number that you pull out of thin air.

The process should include looking at your current financial situation and developing an approach based on your goals, time horizon, and risk tolerance. The process should take into consideration all your potential sources of retirement income, and project what your income would look like each year in retirement.

We all have our “blue sky” visions of the way retirement should be, yet our futures may unfold in ways we do not predict. So, as you think about your “second act,” you may want to consider some life and financial factors that can suddenly arise.

Retirement is now 20+ Years

You may see retirement as an extension of the present rather than the future. This is only natural, as we all live in the present, but the future will arrive. The costs you have later in retirement may exceed those at the start of retirement. As you may be retired for 20 or 30 years, it is wise to take a long-term view of things.

Health Insurance Gap

If you retire before age 65, what do you do about health coverage? You may shoulder 100% of the cost unless you have a plan in place.

Age may catch up to you sooner rather than later

You may stay fit, active, and mentally sharp for decades to come, but if you become mentally or physically infirm, you need to find people you can trust to manage your finances.

You could be alone one day

As anyone who has ever lived alone realizes, a single person does not simply live on 50% of a couple’s income. Keeping up a house or even a condo can be tough when you get older. Driving can also be a concern. If your spouse or partner is absent, will someone be available to help you in the future?

These are some of the blind spots that can surprise us in retirement

They may quickly affect our money and quality of life. If you age with an awareness of them, you will be able to manage the outcome better.

Your workplace retirement account can play a critical role in your overall retirement strategy. However, some people have gone further with such accounts than others, especially recently.

Much has been written about the classic financial mistakes that plague start-ups, family businesses, corporations, and charities. Aside from these, some classic financial missteps plague retirees.

Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. However, whether they result from under planning or fate, we need to be aware of them as we prepare for and enter retirement. This is where working with a professional will help you to anticipate these needs.

Timing Social Security

As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for higher retirement income. Filing for your monthly benefits before you reach Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments. Although this isn’t the best strategy for all, everyone is unique and has different goals. There are different reasons for waiting or taking it right away. That’s something your advisor will work with you to determine.

Managing medical bills

Medicare will not pay for everything. Unless there’s a change in how the program works, you may have a number of out-of-pocket costs, including dental and vision care. Planning for these is key. There are also many different Medicare plan options. We offer a complimentary Medicare analysis to our retiree clients to help them determine which plan is best for them based on their medical needs.

Underestimating longevity

Actuaries at the Social Security Administration project that around a third of today’s 65-year-olds will live to age 90, with about one in seven living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.

Withdrawing strategies

You may have heard of the “4% rule,” a guideline stating that you should take out only about 4% of your retirement savings annually. When we meet with clients and understand your goals, income generation may be a key planning strategy. This is where we use your principal to generate income, through interest and dividends, so you withdraw a monthly amount (like a paycheck) without hurting your principal or needing to sell shares. With this strategy, you would never run out of money as you’re only withdrawing the income being generated from your investments. This can also be a great strategy if one of your goals is to provide for your heirs or create generational wealth. It’s also beneficial in providing for unexpected expenses in retirement.

Talking About Taxes

It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming your retirement will be long, you may want to assign this or that investment to its “preferred domain,” which means the taxable or tax-advantaged account that is most appropriate for it as you pursue a better after-tax return for your entire portfolio.

Retiring with debts

Some find it harder to preserve (or accumulate) wealth when you are handing portions of it to creditors. Could we pay off your mortgage faster by refinancing it into a 15-year loan? Or does it make sense to pay it off in a lump sum? We will help with an analysis of income to expenses in retirement and come up with a plan that makes the most sense for you and your family.

Putting college costs before retirement costs

The number one goal should always be saving for retirement. You can borrow for pretty much everything in life except retirement. Your children have their whole financial lives ahead of them and there are plenty of strategies to help them with the financial costs of college.

Retiring with no investment strategy

Expect that retirement will have a few surprises; the absence of a strategy can leave you without guidance when those surprises happen.

These are some of the classic retirement mistakes. To help you avoid them, take some time to review and refine your retirement strategy with the help of a trusted financial professional.


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Chesapeake Financial Advisors is a fee-only financial planning, investment advisory, and tax planning firm with offices in Towson, Columbia, Frederick, and Chevy Chase Maryland.

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