Do You Need to Be a Millionaire to Retire Comfortably?
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I had a lot of fun yesterday being on the panel for the #retireeNextDoor Tweetcast.
Jeff Rose from Good Financial Cents and Money Tips did a fantastic job hosting it and some wonderful advice was shared.
Like I mentioned the other week, we tend to put off preparing for retirement for a few reasons. I think one huge factor is the unknown.
We hear all these huge numbers about what we need that it can be discouraging. I don't think we have to be afraid of it.
Planning for retirement is a bit like saving up for a baby – you will never be able to prepare for every event, but you're better off having something saved up rather than nothing.
You can get an idea of where to start if the two of you can sit down and find what works for you.
Define Your Retirement
Make it a dinner date and talk about what you'd like to do when you're retired. Ignore the numbers for just a moment and just focus on what you want.
Retirement is a kind of a catch-all phrase that doesn't really help you plan as everyone has different ideas on how they'd spend it.
Joe Saul-Sehy from Stacking Benjamins had a wonderful remark about retirement yesterday. He said retirement isn't an event, it's a 40+ year span of life for many.
It may be easier to think of it in phases. What do you want to do when you're in your 30s, 40s, 50s, 60s, and beyond?
After talking about it, you two may want to do a hybrid or stepping stone retirement. Perhaps you set a goal to build an income stream that will allow one or both of you to explore a new business or to start investing in real estate.
You're not officially retiring, but rather you're now able to quit your day job and give full-time attention to building the income stream and boosting net worth for when you do stop working for money.
Every couple will come up with their own plan, but you can make progress until it's discussed.
Finding Your Retirement Number
Now that you have a picture of what you want, the two of you can work backward and see how much money you need to retire.
You may discover that your retirement doesn't have to require a million dollars in the bank to achieve. Or you may see that it will take a boatload of money.
If you're in the latter category and you are freaking out about not having enough when it's time, take a few days and break your goals down further to extract the absolute essentials.
What do you truly want? What are the non-negotiable? Start with those and get a baseline number and build from there.
No matter what your goal is, the best thing you can do as a couple is to start now. If you haven't already, start this week.
Pick some amount you can afford, automate your contributions, and increase it with every raise/bump in pay. Time is one of your biggest allies, so use it.
Should You Include Social Security?
Personally, we don't include Social Security in our retirement plans. I have no idea how exactly it play out, but I'm pretty sure that it will be stripped down by the time we qualify to take it.
I'd rather be pleasantly surprised at the extra income than being disappointed because it wasn't what I had planned for.
Unless you will be retiring soon, I think you're better off not making it a pillar of your retirement plan. (Completely my personal opinion)
Thoughts on Retirement and What It Means to You
I hope the two of you have a chance this week to discuss your retirement plan. I'd love to hear what you come up with and what your overall strategy is to get there.
I think we definitely do not need a million to retire comfortably! It all depends on lifestyle choices. If you want Florida oceanfront, world travel, and a Mercedes, best to plan to keep working for a while! 🙂
True, which is why having that discussion is so important. You can adjust as you sit fit based on your goals.
I prepared for retirement a very long (30 years ago) time ago. I reached financial independence, but decided to return to work although it was different. I expect to retire again in 2-3 years and added to my nest egg with a pension, Socil Security and a much bigger nest egg. My needs will be covered by my pension and Social Security and my wants by my savings (nest egg). I may even add to my earnings with additional businesses.
Thanks KC for sharing your success story! Please keep me updated on the next phase of your financial journey.
It depends on each person and their expectations of retirement and such. Given how long retirement is expected last these days as well as a stanard of living that would be along the lines of what we have no, I would personally answer yes, that having greater than a $1m net worth is required.
I do agree that everyone should discuss their expectations for retirement. I think some may find that they really want to ‘retire’ in stages – such as enough financial independence to explore other career options. Once a goal is set, it’s much easier to get a ballpark figure.
For us, figuring out our ultimate goal was the most important step. It’s hard to know how much money you need in order to retire until you define what your life will be once you’re retired. And, for us, since we’re looking at early retirement, it’ll really be more of a lifestyle shift (to living on rural homestead) than a traditional “retirement.”
Glad you’ve talked about your goals for a lifestyle shift. We’re in a similar boat – we’re working towards the next phase of our finances so both of us will be able to work from home.
I think that a million dollars is just not what it used to be given the natural effects of inflation. That being said, lifestyle choice really impacts retirement expenses to some degree as well. Good point on social security not being a pillar for people with many years to go.
Yeah, I think that staking your retirement on social security can backfire. Besides the uncertainty of how it will continue in the next few decades, but you’re also putting your plans in the hands of something out of your control.
I think the big nest egg is becoming more and more important. Like you mentioned, social security cannot be relied upon. Additionally, the defined benefit plans offered by most governments and large corporations are not nearly as good as they used to be.
I hope that this posts motivates couples to run the numbers and see what they need to get the retirement they want.