For many investors, figuring out just what they need to save for retirement comes down to a nice, neat round number.
Whatever that is – $750k, $1 million, even $5 million – this number often represents the end goal for savers. But this number doesn’t really tell the whole picture when it comes to retirement savings. What we really should be focusing on is income.
And it looks like we are going to need a lot more of it than we think.
According to a few new studies of what retirees actually spend their money on, many of us have some work to do with our savings. It turns out that we often spend more than what we have been estimating.
Higher Daily Costs
One of the biggest axioms in all of personal finance and retirement planning is that you should count on spending about 75 to 80% of your preretirement income during your golden years. This takes into account certain things like commuting and professional organizational memberships that are no longer needed when you retire. Pretty much all standard issue retirement calculators use this formula when trying to come up with a ‘number’ for savers to shoot for. Check out our IRA guide for tips on saving.