Retirement is much like a side-view mirror on your car: objects are closer than they appear.
It suddenly hit Ron Lieber that, as a columnist in his 50s, he isn’t all that far away from 65 — and he needed to start planning for the end of his working life now.
The New York Times “Your Money” finance writer probably thinks about retirement more than the average person based on the nature of his job — but he still didn’t know the amount of money he needed to ensure that he could ease into a relaxing and secure retirement.
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“It’s easy to get caught up in the math before knowing what you want out of this phase of life,” Lieber wrote in a recent NYT column.
So, he decided to figure it out: “I wrote a retirement mission statement — a list of first principles to guide my decisions.”
Lieber believes that this is the way to find your own “magic number” that you need in retirement.
Here are the questions you can ask yourself to help craft your own retirement mission statement — and start saving for your golden years now.
Where do you want to live?
Lieber and his wife, Pulitzer Prize-winning journalist Jodi Kantor, are okay with being short-term renters, rather than owning a home or staying in their current one.
Instead, Lieber said he wants to live in “some place beautiful, close enough to my kids to be able to help them often.”
Living near adult kids — and possibly grandchildren — is something that many retirees wish to do. However, you need to consider how much your cost of living can increase if you do make a move to a home in a new city.
Right now, Lieber lives in Brooklyn, according to his website. He doesn’t say where his kids live, but if they live outside of New York, Lieber will likely end up saving money.
The median rent in New York currently sits at $3,392, according to a recent ConsumerAffairs analysis of Zillow rent data. To avoid paying more than 30% of your income on housing (which is the general rule of thumb), ConsumerAffairs data suggests that Lieber would need $135,713 per year to afford rent.
This is the highest annual income required across the U.S. for renters. So, Lieber may luck out by leaving his current home for a rented one in a cheaper city.
Wherever he winds up, he can use the current median rents to create a rough amount of how much money he’ll need to pay in rent every year.
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What do you want to do?
Lieber doesn’t want to keep working in retirement. Instead, he wants to read, play the piano, cook for his wife, run at a slow pace and be of service to the people around him.
The nice part about these pursuits is that most of them don’t cost much money. The downside is that none of them bring in additional income.
Therefore, Lieber will need to ensure that he has most of his retirement fund saved by 65. Although he doesn’t need to have everything saved by then — he can still rely on investments and Social Security — his foundation must be solid.
This is where the math needs to kick in for Lieber — and for you. You can use the “multiply by 25 rule” to uncover how much you need in savings by 65. Think about how much money you’d like to live off annually in retirement and multiply it by 25. That’s your magic number.
For instance, if you want to live on $60,000 per year for the next 25 years, you will need $1.5 million in savings.
Again, you don’t need to have all that money socked away by your 65th birthday, but a good chunk of it would go a long way toward helping you reach that goal.
You can also rely on the power of compound interest, as well as a small portion from Social Security payouts, to cover the rest.
What do you need help with?
Lieber entitled his column about his retirement mission statement “How to Make Retirement Less Scary.”
The scariest parts of retirement are often financial, but they’re also health-related. It’s inevitable that your body — and possibly your mind — will wear down. As Lieber pointed out in his third and final mission statement question: you’re going to need help — and that will cost money.
Lieber believes he may need an at-home caregiver later in life. A Place for Mom, a caregiver company, said that it costs a median of $30 per hour for a 24/7 at-home caregiver, totalling more than $20,000 every month.
You may not need round-the-clock care, but even with a caregiver at $30 per hour for a few times a week, you’ll wind up spending at least a couple hundred dollars a month.
Long-term care insurance is a way to start saving for that. It can help you save up for retirement and your health care needs without burdening your adult kids — something Lieber himself desperately wants to avoid.
Overall, Lieber’s retirement mission statements are more of a guiding light than an unyielding budget.
“These statements may seem basic, but I’m going to refer to them every time I have to make a decision about money,” he said.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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