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.