Don’t be worried about the exact dollars and cents. Just being in the ballpark is good enough.
It’s a good idea to figure out that number. Know why?
Of course, knowing how much you need to save each year helps keep you on target.
But there’s another reason. It seems that merely going through the motions of calculating “the number” acts as something of a self-fulfilling prophesy.
Editor Janet Bodnar writes in a recent edition of Kiplinger’s that “workers who have taken the trouble to calculate how much money they’ll need in retirement tend to have higher savings goals and more confidence that they’ll achieve them. In fact, those who used an online calculator significantly decreased their chances of running short of money.”
Get that? By simply calculating what you need for retirement, you increase your odds of having enough money in retirement.
So here’s a really productive way to spend 5 minutes.
If you haven’t already mapped out and quantified your retirement strategy (and in all honesty, most people haven’t), go online and test the numbers using an online retirement calculator like those offered by Kiplinger’s or CNNMoney.
Here’s a caveat. These are free calculators. They are not as sophisticated or detailed as those used by financial planners in their practice, but they should get you close to the right ballpark (which we assume, for many people, is an improvement over where they are now).
Here’s a real life story of how this can work.
We have a client we’ll call Diane. Diane has a great corporate job making well over $100,000. She’s getting close to retirement, but started saving late and is now playing catch-up. The skimpy $5,000 she was saving each year in her 401(k) wasn’t cutting it. We told her that to get where she wanted to go, she would need to max her 401(k), adding over $20k each year, plus fund Roth IRAs for herself and her husband. That’s a pretty ambitious goal, and we know we set the bar pretty high. But guess what? Diane rose to the occasion. She knows where she’s headed; all she needed us to do was hand her the road map.
Don’t have a road map? Take a few minutes to plot your course. It could be the most valuable 5 minutes you ever spend.